Matters to be aware of in the event of an untimely death before, or shortly after, a divorce or dissolution is finalised.
The process of divorcing or dissolving a civil partnership is often a difficult and unpleasant one. As such, it is understandable if an individual's instinct is to want to put thinking about their Will on the backburner until their divorce or dissolution is finalised. Such a delay could, though, have unintended consequences.
This article discusses several matters to be aware of in the event of an untimely death before, or shortly after, a divorce or dissolution is finalised.
As discussed below, it is highly advisable for any individual currently divorcing or dissolving a civil partnership, or looking to commence such proceedings, to review:
- Their existing Will and/or put in place a new Will;
- Any powers of attorney already in place;
- How joint assets are owned;
- Their potential inheritance tax exposure and estate planning.
Intestacy Rules
If an individual dies without leaving a valid Will, their estate is distributed to their nearest living relatives in a pre-determined order under rules known as the Intestacy Rules. Under the Intestacy Rules, a spouse or civil partner is entitled to inherit a certain share of the estate. The Intestacy Rules apply until any divorce or dissolution is finalised and could result in an estranged spouse or civil partner inheriting when it would otherwise be against an individual's wishes.
In comparison, a former spouse or civil partner does not inherit anything under the Intestacy Rules.
Will
A Will is not automatically revoked by divorce or dissolution of a civil partnership. If an individual has a valid Will before divorce or dissolution proceedings commence, the Will continues to be valid during the proceedings. Consequently, if an individual were to die during ongoing divorce or dissolution proceedings, an estranged spouse or civil partner would still benefit under the terms of the Will.
Once a divorce or dissolution is finalised, a valid Will continues unless it is replaced or destroyed but is read as if the former spouse or civil partner has pre-deceased. For example, if a former spouse or civil partner is named as a beneficiary, this legacy would fail, and other beneficiaries named in the Will would instead inherit in their place. This can create unintended consequences, including unfavourable tax treatment.
Inheritance (Provision for Family and Dependants) Act 1975 (the ‘1975 Act')
It is a well-established principle that an individual in England and Wales has testamentary freedom to make any provision they choose to in their Will. The caveat to this principle is the provision made in the 1975 Act that allows an eligible person to make a claim against an individual's estate after their death if they think that “reasonable financial provision” has not been made for them from the deceased's estate under their Will or the Intestacy Rules. A spouse, civil partner, former spouse and former civil partner are all eligible, on the face of it, to make a claim.
In the context of divorce or dissolution of a civil partnership, the 1975 Act:
- Is relevant in the event of death during ongoing proceedings before any financial order is made if a spouse is not provided for under an interim Will.
- Provides for an individual to make a claim for “reasonable financial provision” only. A spouse or civil partner (including during ongoing proceedings) may be entitled to make a claim for reasonable financial provision in all the circumstances. In comparison, a former spouse or former civil partner may only be entitled to make a claim for reasonable financial provision for their maintenance. Consequently, in theory, it is harder for a former spouse or civil partner to make a successful claim.
For an individual who is going through, or has been through, a divorce or dissolution of a civil partnership, it is often worthwhile writing a separate statement called a ‘1975 Act Statement' to be read alongside their Will.
Powers of Attorney
Spouses and civil partners often appoint each other as their attorneys under a Lasting Power of Attorney or Enduring Power of Attorney. In the event of divorce or dissolution of a civil partnership, it is important to review any powers of attorney in place. It may be necessary to formally revoke a power of attorney, as well as put in place new powers of attorney.
Jointly owned assets
Co-owners can own assets together as ‘joint tenants' or ‘tenants in common'. If assets are owned as joint tenants, on the death of the first co-owner, the assets will not pass under the terms of the deceased's Will and are instead automatically inherited by the surviving co-owner. Many couples own their assets together as joint tenants whilst married.
If a joint tenant wishes to leave their share of the jointly owned asset under their Will, they will need to effectively end the joint tenancy (known as ‘severing the tenancy') and own as tenants in common going forward. Individuals going through a divorce or dissolution of a civil partnership often want to take this step and sever their joint tenancies.
Inheritance tax
Beneficial inheritance tax rules apply for spouses and civil partners. Assets can be gifted during lifetime, and left on death, between spouses and civil partners (including once estranged) free of inheritance tax. In addition, spouses and civil partners between them may be entitled to leave up to £1 million free of inheritance tax to any individual, subject to qualifying conditions. If one spouse or civil partner does not use their share of the tax-free allowances, any remaining tax-free amount can be transferred and claimed for the benefit of the surviving spouse or civil partner's estate on their death. This rule continues to apply for estranged spouses and civil partners until the divorce or dissolution is finalised. Therefore, it is often necessary for any individual to review their inheritance tax exposure when divorcing or dissolving a civil partnership.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
