Please consider the following facts (which are actual, not hypothetical):
Mack and Mabel owned their home as joint tenants. Due to the breakdown of their marriage, they sold their home and, as agreed, left the net proceeds of sale with the solicitors pending resolution of the division of the proceeds.
Negotiations followed but no proceedings were commenced. Although they came close to agreeing to a settlement, nothing was agreed. They divorced in the meantime.
However, Mack died. He had changed his Will leaving his estate to his two children and nothing to his former spouse to help support the children.
It is common for married couples to own property as joint tenants meaning that the survivor will automatically acquire the deceased spouse’s share irrespective of what the Will might say. On the other hand, when property is owned as “tenants-in-common”, this means that the deceased’s share passes in accordance with the terms of the Will. Some couples, particularly when there are blended families involved, prefer tenancy-in-common.
Several legal issues arise from the above scenario:
- Was Mabel able to commence proceedings under the Family Law Act following Mack’s death?
- Were the proceeds of a (joint tenancy) sale held by the solicitors upon trust for Mack and Mabel as joint tenants or as tenants-in-common?
- If the latter, who as a matter of law was/were entitled to inherit?
- What rights does Mabel have?
I will quickly deal with questions 1, 3 and 4 and then question 2 separately.
Q1: No – Only proceedings which have been commenced before the death may be continued (Section 79(8) Family Law Act).
Q3: Mack’s children (in respect of his interest as tenant-in-common) Section 127(1) Succession Act.
Q4: To make a family provision claim as she is an eligible person under Section 59(1)(a) Succession Act (but she must show ‘factors warranting’ to bring a claim). Again, this does not apply if the funds are being held jointly.
Question 2 – Joint Tenancy or Not?
This is obviously an important issue for these reasons:
- If the funds were held jointly, Mabel would inherit the whole estate;
- If not (i.e., they were now held in tenancy-in-common), then her share would be limited to one-half of the proceeds even if would have been entitled to more under the Family Law Act. Further, the other half (in favour of the minor children) would be controlled by someone else (for example, Mack’s brother if he was the executor);
Joint tenancies may be severed in one of four ways:
- In the case of real property, pursuant to Section 97 Real Property Act. This is the section applied by a party who wants to sever the joint tenancy and thus establish a tenancy in common relationship.
- By an act of severance by mutual agreement between the joint tenants.
- By an act of severance by any joint tenant being an act of alienation such as a declaration of trust in favour of a third party.
- Severance by a course of dealing. This is where there is a course of dealing which is sufficient to indicate that the interests of the joint tenants are now to be treated as a tenants-in-common.
So, what is the answer?
There are at least two old Australian cases (1932 and 1941) which, in similar circumstances, held that the joint tenancy was not broken. However, since then, a respected English judge, Lord Denning, has found in similar circumstances that the real question is whether the parties had clearly evinced an intention that the property (now sale proceeds) be held as tenants in common. In the case of Mack and Mabel, was their clear reason for selling (and their separation and divorce) sufficient to sever the joint tenancy? Probably but the matter remains uncertain.
What should we learn from this?
Where joint tenancy parties are in dispute over the proceeds of sale of property or over money which is held in a joint account, they (and their legal representatives) need to give consideration to how proceeds which are in dispute are to be treated: are they joint property or property owned as tenants-in-common? In other words, if one of them dies before the resolution of the problem, does the money along to the survivor or to each of them equally? This will certainly be the case if the parties are not involved in family law proceedings at the time of death. If they are, then the question which arises is: does the executor wish to continue to pursue those proceedings?
A simple instruction to the solicitors may be given to this effect:
“We instruct you to hold the proceeds of sale of Blackacre pending resolution of our family law dispute. Subject to Section 79 Family Law Act, we wish the funds to be held in equal shares as tenants in common (or as joint tenants) pending the resolution of these proceedings by court order or settlement. “
This would at least make the position clear. Leaving the position vague could involve unnecessary expense and angst.
Effective Date of Divorce – Implications for Succession
This topic in some respects follows on from the previous topic.
Divorce has two distinct points of significance under the Succession Act:
- A divorce revokes any appointment (such as executor) and any gift or disposition to the Will maker’s former spouse made under a Will which existed at the time of the divorce.
- A spouse of an intestate is defined as a ”person… who was married to the intestate immediately before the intestate death.”
With divorce, there is a gap between the date of a divorce order and the date upon which the order takes effect. Before the current Family Law Act, these respective events were referred to as Decree Nisi and Decree Absolute. These are not terms now used.
Section 55(1) Family Law Act says that a divorce order “takes effect by force of this section at the expiration of a period of one month from the making of the order.” [As an aside, this is Section 55A which relates to children factors].
Section 55(4) says that a “divorce order does not take effect by force of this section if either of the parties to the marriage has died.”
The technical effect of these sub-sections, particularly 55(4), is that the parties are still married until the one month period has expired. This may have a number of implications if a husband or wife dies after the divorce has been granted but before the divorce takes effect. This has happened in a matter in which we are currently involved.
If you have any further queries, please do not hesitate to get in contact with Mark Squire.