Divorce in later life can have a devastating impact. Susan Bonnici* offers advice on navigating the upheaval with a special focus on Estate Planning.
Divorce at any age is tough. When you’re older at the time of divorce, it’s crucial that you consider how you split your assets and the implications this will have for your estate, especially if you have adult kids or a blended family.
According to the Australian Bureau of Statistics (ABS), the median age at divorce is rising for both men and women with ABS statistics showing the median age at divorce is now 42.8 for women and 45.9 for men, compared to 38.6 and 41.4 in 2000.[1]
The term ‘grey divorce’ was coined by US author, Alex Kuczynski, in 2008 in her book titled “The 37-Year Itch,” and is now used to describe the increasing number of older people splitting up after very long marriages. Grey divorces bring their own unique set of challenges and can wreak havoc on well-thought-out plans, particularly from an estate planning point of view. If you are facing a divorce or the breakup of a de-facto relationship in later life (including same-sex unions) you might wish to consider the following tips to help you prepare for the changes ahead and protect your legacy.
Many couples choose to leave all of their assets to each other in their wills. This can create significant legal issues if the couple divorces and they don’t each update their Wills. In most Australian jurisdictions, a divorce does not automatically revoke a Will, but it does revoke any clauses that mention the ex-spouse. For example, if you have appointed your ex-spouse as an Executor or Trustee, those appointments will no longer apply, and new people will need to be appointed to those roles. Similarly, any gifts that you make to an ex-spouse in your Will are also revoked and you will need to re-think who you would like to benefit from your estate and update your will accordingly. These automatic revocations may mean that the Will is incomplete if it is not reviewed and updated after a divorce.
For this reason, revisiting your Will is one of the first and key steps in the divorce process to ensure you pass on your assets to the people you want. A comprehensive estate planning review will also include updating the beneficiaries of assets outside your estate, such as superannuation and insurance.
A big question is whether a person should update their Will before or after their divorce. There are two sides to this debate. While it’s usually a good idea to change your Will before your divorce, as your spouse will be entitled to your assets until your divorce is official, sometimes it’s better to wait for the official separation of assets and formal property settlement so that each party is clear on the assets that they own post-divorce. If the property settlement is taking some time, then it may be a good idea to put an interim Will in place to cover the period between separation and the formal division of assets.
Once a settlement has been reached, it will be important to create or update your own Will to deal with the assets that you own after the divorce and any changes to your beneficiaries as a result of the divorce.
At some stage during your marriage, you and your partner (or ‘spouse’ in legal terms), may have established a family trust, with the intention of passing assets on to your children or grandchildren. A divorce will probably mean that any family trusts will be wound up and the assets re-distributed. Depending upon your financial situation (and it’s a good idea to obtain independent financial advice at this time) you might wish to establish your own family trust to hold some of the assets.
Updating an estate plan is also a good idea and can be more complicated if one party has remarried or plans to do so, and there are children from the first marriage. The party who is re-marrying will need to give careful thought to how they wish to provide for their new partner, while also leaving something for the children of their previous marriage. This can be a very emotional process, especially if there is any conflict or ill feelings involved in the family. One option is to provide a “life interest” in the estate or part of the estate (such as the primary residence of the couple) for the new partner. This means that the estate assets will be held in trust for the benefit of the new partner (“the life tenant”) and they will be able to live in the property or receive the income payments from investments, for example, for the remainder of their lifetime. After they pass away, the estate assets could then be distributed to the Willmaker’s children.
It’s vitally important to consider how property is owned by a couple when there is a blended family involved. If a couple owns all their property jointly, then when the first of them dies the “law of survivorship” will apply, meaning that all property automatically transfers into the sole name of the survivor. This may mean that any children of a previous marriage miss out completely, depending on the relationship they have with the surviving partner. If a Willmaker wants to ensure that his or her children from a previous marriage receive a share of the estate, they may need to sever a joint tenancy in a property they own with a new partner.
Especially when couples are older, Enduring Powers of Attorney (EPAs) may already be in place, where you’ve named each other as the person responsible for to managing your respective financial affairs in the event one of you loses capacity.
In the lead-up to, or following your divorce, you will need to choose a new person or people to appoint in your EPAs. If you’re unsure who to appoint, or you don’t have anyone that you would trust to carry out this role, then you could always consider appointing an independent trustee company as your financial attorney.
While adult children are often independent and living their own lives when older parents divorce, there may still be much concern over what will happen to their future inheritance, especially if one of the parents already has a new partner. This could eventually lead to the children challenging the Will if one or both parents pass away.
Communicating the changes in Wills and overall estate plans to family members can help reduce potential family conflict and angst during the divorce process and long afterwards. Unfortunately, this is not always possible if there is a lot of ill feeling and estrangement among the family members. But if you can find a way to keep everyone informed of your intentions, without generating further conflict, then there will be fewer unexpected surprises when it comes time for the will to be administered.
In some circumstances, the divorced couple will choose to keep some aspects of their lives intertwined or will be required to by forces outside of their control. They may, for example, run a family business that they wish to continue after their separation, or they may have an adult child with additional needs or some other sort of vulnerability who they both continue to assist. In these circumstances, the estate plan may need to consider what each party’s continuing role will be when the first of them dies. They may need to work together to put a long-term solution in place.
It’s important to remember that estate planning is a dynamic process even during the throes of a divorce – no matter what stage of life the divorce occurs. While it can add an extra level of complexity, its vital to keep the discussions open with your family.
Given the complexities of estate planning for grey divorcees, it is well worth seeking advice from a legal professional such as your nominated estate planning solicitor or family lawyer who can set out the pros and cons before you make any decisions.
* Susan Bonnici is Senior Estate Planning Solicitor at Equity Trustees. Equity Trustees is a specialist in wills and estate planning, developed on a foundation of more than 130 years of experience.
[1] Australian Bureau of Statistics, Marriages and Divorces Australia, 2020