Are you separated – Impact of Separation on your Will and Estate Planning

Overview

A formal separation between married couples or de-facto partners is emotionally burdensome for both spouses or partners and their respective extended families. This may lead to other significant matters being overlooked. This article aims to provide a simplified overview of the impact separation and divorce may have on your Will and estate planning documents in Western Australia, and the need to seek anticipatory legal advice in that regard.

Scenario

My client recently separated from his wife. The client has investment interests in real property, shares and a self-managed superannuation fund. Both spouses were in the process of negotiating the terms of a property settlement order from the Family Court WA.

My primary objective was to review my client’s estate planning documents and provide him with advice as to what steps he must undertake with respect to his estate to address the recent changes in his family circumstances.

The client’s estate planning documents revealed that:

1. he had executed a Will and a non-lapsing binding death benefit nomination for his self-managed superannuation fund a few years ago before he separated from his ex-wife;

2. his ex-wife was to get a lion’s share of his estate and all the superannuation monies pursuant to the current Will and the non-lapsing binding death benefit nomination;

3. the enduring power of attorney and enduring power of guardianship nominated his ex-wife to be his attorney and guardian.

Separation and Divorce- The Differences

Separation and divorce are two terms that are sometimes used interchangeably when referring to the break-up of a marriage, but they do not have the same legal definition.

A separation is when you and your spouse or de-facto partner stop living together as a couple or partners. However, this does not mean that one of you has to move out – you can still be deemed separated whilst still living under the same roof. Importantly, you are still legally married when you are separated, until you officially end your marriage by seeking a divorce order from the Family Court. Divorce orders are granted by the Family Court only in the case of married couples, but not in case of de-facto partners.

Many couples separate and never obtain a divorce order or a property settlement order from the Family Court.

Legal Ramifications on Wills and Estates Planning

The laws relating to the impact of marriage and divorce on a person’s estate differ from State to State. In Western Australia, both marriage or divorce render your current Will invalid unless the Will was prepared in contemplation of the marriage or divorce.

A separation for any length of time from your spouse without a divorce order from the Family Court does not automatically render your current Will invalid.

This does not present many problems whilst both spouses are alive, but if one of them passes away without a Will the laws relating to intestacy apply to the deceased person’s estate. Similarly, if a person dies leaving a Will, which was executed prior to the separation, such a Will is valid despite them being separated for a long time with no intention of leaving each other their assets.

In case of a separated de-facto partner, the current Will remains valid despite separation, unless he or she executes a new Will post separation.

I advised my client that the process of negotiating a property settlement with his ex-wife may take significant time. If his ex-wife agrees to have property settlement orders, but does not agree to obtaining a divorce order from the Family Court WA, his current Will remains valid and his ex-wife will receive a significant portion of his estate and the superannuation monies despite he not having any intentions to leave any assets for her.

Recommendations

I recommended the client to review his Will, enduring power of attorney, enduring power of guardianship and a non-lapsing binding death benefit nomination for his self-managed superannuation fund to reflect the changed family circumstances. The new Will must state that it has been prepared due to his separation from ex-wife and in contemplation of a divorce rendering it valid irrespective of whether or not a divorce order is made by the Family Court in the future.

My client accepted these recommendations and executed his new Will, Enduring Power of Attorney (EPA), Enduring Power of Guardianship (EPG) and a non-lapsing binding death benefit nomination to reflect his changed family circumstances.

Takeaway Message

I strongly recommend periodic legal review of your estate planning documents (i.e. Wills, Powers of Attorney, Powers of Guardianship and death benefit nominations for superannuation monies) after any significant change in your family circumstances (e.g. death, divorce, births, marriages etc.). This will minimize legal costs and mental agony for all involved parties after separation, divorce or death as the case may be.

Archana Luktuke1 June 2019

Mr and Mrs Joe Bloggs contacted me to seek legal advice on a proposed commercial lease provided by the real estate agent for their upcoming coffee shop in suburban Perth.

Mr and Mrs Bloggs were being rushed into signing the proposed lease, which they were not comfortable with. They started by explaining how their friend, who runs a hair dressing salon, was provided with extensive written information and a proposed lease to review before executing it. This was in stark contrast to a small seven-page template that they received by way of a proposed lease from their letting agency. I explained to Mr and Mrs Bloggs that their friend and they are subject to separate leasing legislation, however their due diligence before signing the proposed lease will assist them in the long run. In Western Australia, leases for commercial premises can be categorised as retail leases and commercial leases. It is important to note that all commercial leases in Western Australia are not governed by the same legislation.

A summary of the safeguards that a potential lessee of a commercial lease must consider is discussed below.

Retail Leases

Retail leases are governed by Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the “Retail Shops Act”) and are limited to premises:

(a) with a lettable area of 1,000 m2 or less;

(b) used for carrying on a business and that are in a retail shopping centre (a group of premises, 5 or more) or otherwise; and

As at 1 January 2013, 'specified businesses' are limited to:

(a) dry cleaning;

(b) hairdressing;

(d) shoe repair (which includes key cutting and engraving); and

(e) sale or rental of videos tapes, DVDs, electronic games and other similar amusements.

Any landlord, whose commercial premises is governed by the Retail Shops Act, is bound by significant number of obligations as to the information he/she needs to disclose to a potential lessee prior to executing the lease. In comparison landlords, whose premises is governed by the Transfer of Land Act 1893 (WA) and the Property Law Act 1969 (WA), are not bound by any specific obligations as to the information he/she needs to disclose to a potential lessee prior to executing the lease.

The Retail Shops Act did not apply to Mr and Mrs Bloggs proposed lease. Therefore, began Mr and Mrs Bloggs’ due diligence journey before executing their commercial lease.

Commercial Leases

The real estate agent provided Mr and Mrs Bloggs with two documents – the Commercial Lease with Annexures and General Terms and Conditions of the Lease. Mr and Mrs Bloggs were seeking advice as to whether both these documents captured the terms and conditions of the agreement between the landlord and them.

Typically, most real estate agents would fill in the details in a Commercial Lease template published by Real Estate Institute of Western Australia (REIWA) and provide it along with the General Terms and Conditions of Lease, also published by REIWA, to any potential lessee.

The General Terms and Conditions of Lease document sets out the obligations and liabilities of the landlord and the potential lessee, however any potential lessee must review whether the following key details have been included in Commercial Lease document provided to him/her:

(a) whether the potential lessee and the landlord have been accurately identified (is the potential lessee and/or the landlord an individual or a company);

(b) whether any guarantors have been included in the lease;

(d) whether any other items (such as equipment) owned by the landlord are being included with the lease;

(e) the term of the lease;

(f) whether the potential lessee has an option or multiple options to renew the lease;

(g) the amount of rent and the frequency of payment of rent;

(h) the mechanism and frequency of rent review;

(i) what are the types of outgoings that the potential lessee is to pay and an estimated amount per month;

(j) whether a security deposit or bank guarantee will be held and for what amount;

(k) permitted use of the premises;

(l) whether the landlord has obtained approvals for the intended use and signage from the local council and the strata management (if applicable);

(m) whether the potential lessee has been provided with copies of approvals for intended use;

(n) insurance requirements to be complied with by the potential lessee; and

(o) how the agreement can be terminated and what is the notice period.

Mr and Mrs Bloggs proposed lease document had the following inadequacies:

(a) incorrect details of the proposed lessee – Mrs Bloggs was named as a lessee in place of the potential lessee company;

(b) the landlord had not obtained any approvals from the local council and the strata management for the intended use and signage although the terms stated otherwise;

If Mr and Mrs Bloggs would have signed up a lease with the inadequacies mentioned above, they would have put themselves in a financial predicament as the incorrect person would have been bound to comply with terms of the lease without any approvals to run the business at the premises and with no estimate of the costs towards outgoings.

Takeaway Message

Caveat emptor – buyers (in this case potential lessees) beware:

The clear message for any individual or entity considering a commercial (non-retail) lease is to undertake adequate due diligence and seek independent legal advice before executing any commercial (non-retail) lease.

Please note that any information included in this article is general information only and does not constitute legal advice. Please contact us to discuss your particular circumstances.