When it comes to planning for your financial future and protecting your assets, it’s crucial to understand how different legal documents interact with each other. Many Australians create binding financial agreements during their relationships and also have wills to dictate how their assets are distributed after death. A common question that arises is whether a binding financial agreement takes precedence over a will, or vice versa. This article explores this important legal question with specific reference to Australian law.
How Binding Financial Agreements and Wills Interact in Australia
Binding Financial Agreements (BFAs) and wills serve different legal purposes and operate in distinct ways under Australian law. While both documents deal with the distribution of assets, they function in different circumstances and are governed by separate legislation.
A BFA is primarily governed by the Family Law Act 1975 and deals with how property and financial resources are to be divided between couples in the event of relationship breakdown. A will, on the other hand, is governed by state-based succession laws and deals with the distribution of assets after death.
To address the central question directly: a binding financial agreement does not automatically supersede a will in Australia. However, the relationship between these two legal instruments is complex and depends on various factors, including the specific terms of both documents, when they were created, and the particular circumstances at hand.
When BFAs May Affect Will Provisions
A binding financial agreement can impact how assets are distributed under a will in several important ways. First, if a BFA specifies that certain assets are the exclusive property of one party, these assets may not form part of the deceased’s estate. This means they cannot be distributed according to the will, as they were already legally designated to the surviving party through the BFA.
For example, if a BFA states that the family home belongs solely to the wife regardless of relationship status, then upon the husband’s death, this property would not form part of his estate. It would remain the wife’s property irrespective of what his will states about the distribution of the family home.
Additionally, if a BFA contains specific clauses about what happens to certain assets upon the death of one party, these provisions could potentially conflict with will provisions. Courts would need to examine both documents to determine which takes precedence, based on factors such as the timing of execution and the specific language used.
Legal Status of BFAs After Death
An important consideration is that a BFA typically regulates property division upon separation or divorce. While some BFAs contain clauses that extend beyond the end of the relationship, including provisions that apply in the event of death, others may not address this scenario at all.
According to Australian law, a BFA technically ends upon the death of either party unless it contains specific provisions stating otherwise. This is because the relationship that the BFA was designed to regulate has permanently ended, not through separation but through death.
If a BFA does contain death provisions, these would typically relate to specific assets or arrangements between the parties. Such provisions would need to be considered alongside the will when administering the deceased’s estate.
Critical Considerations for Estate Planning
Timing of Documents
The timing of when each document was created or amended can significantly impact their interaction. Generally, a more recent document might be viewed as reflecting the most current intentions of the deceased, particularly if it specifically addresses and amends provisions in the earlier document.
For instance, if a person created a BFA early in a marriage and later updated their will with provisions that clearly contradict the BFA, this could suggest an intention to override certain aspects of the BFA. However, this is not a clear-cut rule and would depend on the specific circumstances and the language used in both documents.
Australian courts will often look at the timing and context of document creation when trying to determine the deceased’s intentions regarding conflicting provisions between a BFA and a will.
Specific Clauses and Language
The specific wording in both the BFA and the will is crucial for determining how they interact. If a BFA contains explicit clauses about what happens to certain assets upon death, and these clauses are properly drafted, they may be enforced despite contrary provisions in a will.
For example, a BFA might state that “upon the death of Party A, the investment property at [address] shall become the sole property of Party B, irrespective of any testamentary dispositions to the contrary.” Such a clause, if properly drafted and executed, could potentially override will provisions regarding that specific property.
Conversely, a will might contain language that explicitly acknowledges and incorporates the terms of a BFA, or alternatively, states an intention to override certain BFA provisions to the extent legally possible.
Legal Challenges and Disputes
Potential for Contested Claims
When there are conflicts between a BFA and a will, this can lead to complicated legal disputes among beneficiaries and surviving partners. Under Australian law, several types of claims might arise in such situations.
The surviving partner might make a family provision claim (also known as a testator’s family maintenance claim) under relevant state legislation if they believe they have not been adequately provided for in the will. The existence of a BFA may influence but does not necessarily prevent such claims.
Other beneficiaries might challenge the enforceability of the BFA itself, particularly if they believe it was improperly executed or no longer valid at the time of death. The Family Law Act sets out strict requirements for valid BFAs, including that both parties received independent legal advice.
Court Approaches to Resolving Conflicts
Australian courts take a case-by-case approach when resolving conflicts between BFAs and wills. They generally aim to determine and implement the true intentions of the deceased while ensuring fairness to all parties involved.
Courts may consider factors such as whether the will was drafted with knowledge of the BFA, whether circumstances had significantly changed since the BFA was executed, and whether strict enforcement of either document would lead to unjust outcomes.
In some cases, courts have found that BFA provisions concerning death benefits should be enforced despite contrary will provisions. In others, they have determined that the will reflected more current intentions and should take precedence for certain assets.
Practical Advice for Australians
Coordinating Your Estate Planning Documents
To avoid potential conflicts between your BFA and will, it’s essential to coordinate your estate planning documents carefully. This means ensuring that your BFA and will work together rather than against each other in achieving your desired outcome.
When creating or updating either document, explicitly consider how it might interact with the other. If your BFA contains provisions about what happens to certain assets upon death, make sure your will does not contradict these provisions unless you specifically intend to change your arrangements.
It’s advisable to review both documents whenever significant life events occur, such as marriages, divorces, births, deaths, or substantial changes in financial circumstances. These events may necessitate updates to ensure your estate planning continues to reflect your wishes.
Seeking Specialised Legal Advice
Given the complexity of interactions between BFAs and wills in Australia, obtaining specialised legal advice is crucial. An experienced family lawyer can help draft a BFA that clearly addresses what happens in the event of death and how it should interact with your will.
Similarly, an estate planning lawyer can ensure your will takes into account the existence and terms of your BFA. Ideally, the same law firm should be involved in creating both documents to ensure consistency and avoid unintended conflicts.
Remember that laws regarding BFAs and wills can vary slightly between Australian states and territories, so local expertise is particularly valuable. Lawyers with experience in both family law and estate planning are best positioned to provide comprehensive advice.
Superannuation and Life Insurance Considerations
Assets Outside Both Documents
It’s important to note that some significant assets may fall outside the scope of both BFAs and wills. Superannuation benefits, for instance, are generally not considered part of your estate and are distributed according to either a binding death benefit nomination or the discretion of the super fund trustee.
Similarly, life insurance policies with nominated beneficiaries typically pass directly to those beneficiaries rather than forming part of the estate. These assets require separate consideration in your overall estate planning.
A comprehensive approach to estate planning should address not only your BFA and will but also superannuation nominations, life insurance beneficiaries, and any trusts or other structures through which you hold assets.
Protecting Your Intentions
To ensure your wishes are carried out as intended, consider creating a statement of intentions document that explains the relationship between your BFA, will, and other estate planning instruments. While not legally binding on its own, such a document can provide valuable context if disputes arise after your death.
Regular reviews of all your estate planning documents with qualified legal advisors will help ensure they remain up-to-date and consistent with each other. This proactive approach can significantly reduce the risk of costly disputes among your loved ones after you’re gone.
Need Help With Your Binding Financial Agreement and Will?
The interaction between binding financial agreements and wills is complex and depends on numerous factors specific to your situation. To ensure your assets are protected and distributed according to your wishes, it’s essential to have properly drafted documents that work together harmoniously.
As binding financial agreement lawyers in Australia, we at my law firm can help you create a properly drafted binding financial agreement and ensures it works effectively alongside your will. Contact our team today by calling 1300 529 888 for guidance on protecting your assets both during your lifetime and beyond.