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Setting up your Estate Plan when you have divorced is very important, in this article I will look at a common situation.

(this is a made up example): Bob has one child Kim from his first marriage to Cathy. He has now married Sharon and they have a new child Paul.

Sharon and Bob have a house with a mortgage; Bob also has super of 200k.

Bob wants to make sure if something was to happen to him that Sharon and Paul would be provided for as Paul is only 2 and Sharon is not working at the moment; but he also wants to make sure that Kim is provided for and that Cathy can not claim any part of his estate.

Presuming the house they have bought is in Joint Names then if Bob was to die this house will not form part of his estate; it will transfer over to Sharon. Because it is not part of his estate no one can attempt to claim part of it (for example Kim or Cathy). But this also means that Bob cannot leave part of the home to Kim if he wanted to.

With Bob’s super he has two choices he can do nothing in which case his super may be paid to his current wife Sharon or be paid out to his estate (the Super Fund trustee would decide the most appropriate treatment) this could also be open to dispute. Or he can make a binding nomination; in this case Bob’s super payment will be paid to the person or people that Bob nominates. As long as the Binding Nomination is correctly executed this nomination is not open to dispute after Bob dies.

From a tax Point of view payment of a death benefit from super to a “super dependant” such as a current spouse or under 18 child will be tax free.

Essentially Bob has 3 people he potentially wants and needs to provide for; His Daughter Kim, current wife Sharon and their Son Paul. As long as Bob trusts Sharon to look after Paul he can provide financially to Sharon only as Paul is still too young to look after his own finances. While potentially you can have one life insurance policy that provides for all three people (or more) or you can also make a super nomination nominating three people. To minimise the possibility of dispute and make things very clear I would recommend that Bob takes out a life insurance policy outside of super to specifically provide for Kim. Depending on Kim’s age he may want to allow for a testamentary trust to preserve the proceeds from the life insurance for Kim until she is old enough to look after the funds herself.

To provide for Sharon and Paul Bob can leave his super via a binding death benefit nomination. This reduces the ability for Cathy to dispute his will on behalf of Kim. If Bob wants to provide more than the $200,000 super balance, then he can take out a second life insurance policy. This could be held by his super fund (and so paid out in line with the binding death benefit nomination) or outside with the policy owned by Sharon.