If your marriage or de facto relationship has ended, it’s crucial that you finalise your divorce property settlement (either by consent or through the Family Court) as soon as possible. But what happens if someone dies before the settlement is final? It ultimately depends on when the death occurred.
Keep reading to learn more about what happens to property if a spouse dies during divorce or separation. If you have any questions about divorce settlements, don’t hesitate to get in contact with Beger & Co’s family lawyers.
- What happens if a spouse dies during divorce property settlement?
- What happens if all the assets are held in one spouse’s name?
- Estate of the late Carney & Carney 
What happens if a spouse dies during divorce property settlement?
When a marriage or de facto relationship breaks down, any assets and property shared will need to be divided. If a spouse dies during divorce, how the property will be divided will depend on whether the spouse died before or after an application for the property settlement has been filed.
If the property settlement hasn’t begun
In Australia, you can only file for property settlement if both parties are living. If a spouse dies before the settlement has begun, the property will be divided in accordance with the deceased spouse’s Will. This could mean that the surviving spouse is entitled to part of your estate as per your Will.
This is why it’s paramount that you finalise your property settlement as soon as possible and speak to a Wills and estate lawyer about creating a new Will. By making a new Will, you will ensure that, in the event of your death, your assets will be distributed in accordance with your wishes.
If a spouse dies during divorce property settlement
If an application for a property settlement has been filed, and a spouse dies or becomes mentally incapacitated, a legal personal representative will act in the deceased’s place. But this can only occur if the court proceedings have already commenced.
If you have any questions about this, or find yourself in this position, please speak to the divorce lawyers Adelaide locals turn to.
What happens if all the assets are held in one spouse’s name?
Legal and financial advisers often recommend that assets be held in the name of the spouse with the lower risk profile. This is a simple but effective asset protection mechanism because it means that assets will be protected if the spouse with the higher risk profile is sued.
The fact that most of the assets are in the name or control of one spouse is generally not a problem if the couple divorce and sort out the division of assets by consent or by Court order. However, a significant problem can arise if a spouse dies during a divorce settlement or loses his/her mental capacity before the assets are divided.
The decision of the Full Court of the Family Court of Australia in the Estate of the Late Carney and Carney  FamFcc 166 4 October 2019 provides a sake home message in relation to this.
Estate of the late Carney & Carney 
The husband and wife in Carney married in 1989. This was a second marriage for both of them. They each had children from their prior marriages. In 2017, the husband was admitted to a nursing home. In 2018, the wife brought an application seeking orders for the division of the matrimonial assets. The litigation was conducted on behalf of the husband by a Litigation Guardian. Shortly after the application was commenced, a Litigation Guardian was appointed for the wife. The husband died in 2018 and the proceedings were continued by his legal personal representative.
The wife had assets in her name which included bank funds of about $65,581.00 and a Refundable Accommodation Deposit (RAD) which was purchased in 2018. She received a pension of about $458.00 per week of which 79% was spent on her daily care costs. Her actual care costs exceeded her income by about $82.00 or $87.00 per week.
The husband owned, in his sole name, the former matrimonial home. It was sold in early 2019 for $935,000.00.The primary judge made orders that there be an adjustment in the wife’s favour of 10%, taking into consideration her ill health and ongoing care costs. This meant that the wife would retain 60% of the asset pool and the husband’s estate 40% of the asset pool.
The husband’s legal personal representative of the estate appealed with the argument that the adjustment was excessive. This argument was rejected by the Full Court. Following this, a second argument was raised that the Court should take the terms of the husband’s Will into consideration. The husband had prepared a Will which left his estate (the house in his sole name) to his children and life interest to the wife.
The Full Court rejected this argument and held that a testator’s intentions do not override the considerations mandated by Sections 79(4) and 75(2) of the Family Law Act 1975.
The effect of the decision
The effect of the decision in Carney, from an estate perspective, is that the wife’s children from her prior marriage potentially gained a windfall. Prior to the decision, the wife’s estate would have been comprised of her meagre bank funds if not depleted prior to the date of death and any residual amount from the RAD (if any). As a consequence of the decision, the wife’s assets were bolstered by a payment from the proceeds of sale of the husband’s home in an amount of $415,283.00.
Divide the marital assets before it’s too late
The take home message from this case is clear – if you are in the middle of a divorce or separation, make sure you finalise how the assets will be divided and make a new Will as soon as possible.
If you delay, and particularly if the majority of assets are in your ex-spouse’s name, your estate may miss out if you die or lose your mental capacity. If you need help with your property settlementor you have questions about what happens if you’re separated, but not divorced, and a spouse dies, please contact our property settlement lawyers on 08 8362 6400. Don’t forget to join our mailing list to receive updates and advice on current issues too.