Article - Looking after the kids
Looking after the kids
by Katy Toker
When the Property (Relationships) Act took effect in 2002, there was lot of focus on its recognition of same-sex relationships and how it would affect de facto couples who separated. However, little attention was paid to the effect of
the Act upon relationships ending on death.
Where a couple are in an eligible relationship – marriage, civil union or three years as a de facto couple (with some exceptions) - and one partner passes away, the surviving partner can choose whether to inherit under the will, or opt to take a half share of the relationship property.
Where the majority of the assets were from a first marriage, and the deceased had intended those assets to pass to the children of that first marriage by way of their will, there is the risk that the new partner can walk away with a lot more than the deceased intended.
The most serious repercussion of this situation is that the deceased’s children can be disinherited.
Consider the following situation:
John and Jane marry at the age of 25 and have three children. In 1995 John passes away and Jane inherits his interest in their freehold home, which she then owns in her own name.
In 2001, Jane meets Henry, a bachelor with no significant assets. After dating for a few months they decide to live together in Jane’s house. Sadly, in 2006, Jane is killed in a car accident.
Whilst Jane’s will provides for Henry to continue to live in the home for a period of five years, and for him to inherit a small lump sum, under the Property (Relationships) Act, Henry can instead choose to take a half share of any relationship property.
As Henry and Jane have lived together in Jane’s family home, it has become relationship property. This means that Henry could decide to take a half share of the house that Jane intended to leave to the children of her first marriage.
As illustrated, the provisions of the Act mean that children can be materially impacted if their parent dies while in a subsequent relationship. So, what is the solution?
As with most situations that fall within the provisions of the Act, the most straightforward way for couples to retain control over their assets is to enter into a “Contracting Out Agreement”.
This agreement sets out ownership of property, be it separate or joint, and can be drafted to apply upon death, providing partners and spouses more certainty as to estate planning. If Jane and Henry had entered into a Contracting Out Agreement (which could have been done at any point in the relationship prior to one partners death) setting out that Jane’s assets from her previous marriage were separate property, then Henry could have been in a very different position.
The house could have been set out as Jane’s separate property and dealt with as per her will, allowing her children to inherit the property subject only to Henry’s inheritance of the life interest, Henry would inherit any other share in Jane’s property left to him in her will (along with retaining any of his separate property).
Depending on the wording of their agreement, Henry could still opt to take a half share of relationship property instead. However, with all of Jane’s assets set out as separate property, there would be little left to divide, making this an unattractive option for Henry.
We should note that Henry does retain some other avenues in order to claim a further share of the estate under estate law, such as the Family Protection Act. However, his ability to opt for a division of relationship property, and perceivably make a claim for half of Jane’s assets has, effectively, been shut down.
The death of a family member is a stressful time for all concerned, and uncertainty regarding property can cause tension among the surviving family members.
By dealing with property by way of a Contracting Out Agreement it is possible to help alleviate any uncertainty, by restricting any relationship property claim from a surviving spouse or partner.
It is worth doing it for the sake of your peace of mind, and your childrens.
When the Property (Relationships) Act took effect in 2002, there was lot of focus on its recognition of same-sex relationships and how it would affect de facto couples who separated. However, little attention was paid to the effect of
the Act upon relationships ending on death.
Where a couple are in an eligible relationship – marriage, civil union or three years as a de facto couple (with some exceptions) - and one partner passes away, the surviving partner can choose whether to inherit under the will, or opt to take a half share of the relationship property.
Where the majority of the assets were from a first marriage, and the deceased had intended those assets to pass to the children of that first marriage by way of their will, there is the risk that the new partner can walk away with a lot more than the deceased intended.
The most serious repercussion of this situation is that the deceased’s children can be disinherited.
Consider the following situation:
John and Jane marry at the age of 25 and have three children. In 1995 John passes away and Jane inherits his interest in their freehold home, which she then owns in her own name.
In 2001, Jane meets Henry, a bachelor with no significant assets. After dating for a few months they decide to live together in Jane’s house. Sadly, in 2006, Jane is killed in a car accident.
Whilst Jane’s will provides for Henry to continue to live in the home for a period of five years, and for him to inherit a small lump sum, under the Property (Relationships) Act, Henry can instead choose to take a half share of any relationship property.
As Henry and Jane have lived together in Jane’s family home, it has become relationship property. This means that Henry could decide to take a half share of the house that Jane intended to leave to the children of her first marriage.
As illustrated, the provisions of the Act mean that children can be materially impacted if their parent dies while in a subsequent relationship. So, what is the solution?
As with most situations that fall within the provisions of the Act, the most straightforward way for couples to retain control over their assets is to enter into a “Contracting Out Agreement”.
This agreement sets out ownership of property, be it separate or joint, and can be drafted to apply upon death, providing partners and spouses more certainty as to estate planning. If Jane and Henry had entered into a Contracting Out Agreement (which could have been done at any point in the relationship prior to one partners death) setting out that Jane’s assets from her previous marriage were separate property, then Henry could have been in a very different position.
The house could have been set out as Jane’s separate property and dealt with as per her will, allowing her children to inherit the property subject only to Henry’s inheritance of the life interest, Henry would inherit any other share in Jane’s property left to him in her will (along with retaining any of his separate property).
Depending on the wording of their agreement, Henry could still opt to take a half share of relationship property instead. However, with all of Jane’s assets set out as separate property, there would be little left to divide, making this an unattractive option for Henry.
We should note that Henry does retain some other avenues in order to claim a further share of the estate under estate law, such as the Family Protection Act. However, his ability to opt for a division of relationship property, and perceivably make a claim for half of Jane’s assets has, effectively, been shut down.
The death of a family member is a stressful time for all concerned, and uncertainty regarding property can cause tension among the surviving family members.
By dealing with property by way of a Contracting Out Agreement it is possible to help alleviate any uncertainty, by restricting any relationship property claim from a surviving spouse or partner.
It is worth doing it for the sake of your peace of mind, and your childrens.