Picture the following scenario: A married spouse drew up a detailed and meticulous will, but never signed a financial agreement. The will stated: “I bequeath all of my property to my children.” Sounds clear, right? Except that the practical meaning is entirely different from what he imagined. Without a financial agreement, the Spousal Property Relations Law provides that property accumulated through joint effort is divided equally between the spouses. In other words, only half of the property actually belongs to the testator — and only that half will be divided among the children under the will. The other half? It was never his to begin with.
Now reverse the picture: had the couple had a financial agreement providing that each side holds exclusive rights to the property he or she accumulated, then the will would have applied to the full property, and one hundred percent would have been distributed to the children exactly as the testator intended.
And the complexity is not confined to married couples alone. Common-law partners who signed a financial agreement but left no will may discover that the financial agreement on its own is not enough. A financial agreement does not override the provisions of the Inheritance Law — and in the absence of a will, the surviving partner will inherit from the deceased by operation of law, pursuant to Section 55 of the Inheritance Law. In the case of common-law partners, the implication is especially acute: their inheritance status is determined by law as though they were married, but without additional protections that formal marriage may confer. In other words, everything set out in the financial agreement regarding the division of property may be devoid of practical meaning when the question is who inherits what.
A Key Concept: What Exactly Is an Estate?
Before we dive in, it is important to clarify a concept that recurs throughout this article. An estate is the entire body of assets a person leaves behind when he passes away — the apartment, the bank accounts, the investment portfolio, the car, pension rights, and even personal items of economic value. The estate is the “cake” that is divided among the heirs. And the central question of this article is: what determines the size of the cake, and what determines who receives each portion of it?
How the Two Laws Work Together
The Spousal Property Relations Law was enacted in order to create economic equality between spouses and to narrow property gaps between them. The law is dispositive — that is, it sets a default, but spouses are entitled to alter it by means of a written financial agreement approved by the court.
The Inheritance Law itself makes clear that it does not come to impair the property relations between spouses. This provision, which was added to the law after the enactment of the Spousal Property Relations Law, constitutes the foundation for the harmony between them. The Spousal Property Relations Law sets rules for the division of property along the axis of the marriage and up to its dissolution, whereas inheritance law focuses on the moment of death and sets rules for the division of the estate.
The Decisive Distinction: First Determine How Much — and Only Then Divide
Israeli case law has established a clear distinction between two separate questions. The first question: what is the size of the estate — that is, which assets enter the “cake”? The second question: how is the estate divided among the heirs — that is, who receives each portion? The Spousal Property Relations Law answers the first question, and the Inheritance Law answers the second.
Let us return to the example from the beginning of the article: when the couple has no financial agreement, the Spousal Property Relations Law provides for an equal division, and therefore only half of the property enters the estate — that is the size of the cake. If the couple signed a financial agreement establishing a different ratio, for example 70%–30%, then the estate will be determined accordingly — and the Inheritance Law will divide what remains among the heirs.
Valid Provisions Versus Invalid Provisions: The Boundary Worth Knowing
Not every provision in a financial agreement that addresses the event of death is valid. The legal rule firmly provides that a financial agreement, even if duly approved, cannot determine the identity of the heirs or the division of the estate after death. This domain is governed exclusively by the Inheritance Law. Moreover, Section 8(a) of the Inheritance Law provides that any agreement concerning a future inheritance, or a waiver of an inheritance, made during a person's lifetime — is void. Therefore, even if the financial agreement includes provisions concerning the division of property in the event of death, those provisions will not apply as inheritance provisions, unless they are included in a valid will.
The courts distinguish between two types of provisions in a financial agreement. Excluding provisions — that is, provisions intended to exclude an heir from his inheritance or to determine who will inherit — are without effect. For example, a clause in the agreement providing that “if side A passes away, side B shall have no right whatsoever in his assets” in effect attempts to determine who will not inherit, and this is an encroachment into the domain of the Inheritance Law.
By contrast, conferring provisions — that is, provisions that deal with the division of property between the spouses themselves — are valid. A provision establishing that, in the event of death, all assets subject to balancing will pass to the surviving spouse does not determine who will inherit — it determines the size of the estate. Such a provision has been recognized in the case law as valid and proper.
How Does the Court Examine a Provision in a Financial Agreement for the Event of Death?
When a financial agreement provides that assets subject to balancing will pass to the surviving spouse in the event of death, the court will examine one central question: is this a property arrangement defining the scope of each spouse's property, or an inheritance provision? If the provision is perceived as part of the resource-balancing arrangement — that is, it defines each side's share in the joint property — it will be valid, since it deals with the domain of the Spousal Property Relations Law. By contrast, if it is perceived as a provision conferring private property that is not subject to balancing, or as a provision determining the division of the estate in place of a will — it is liable to be invalidated.
This distinction is subtle but critical. Precise drafting of the provision in the financial agreement can be the difference between a provision that will withstand the court's scrutiny and a provision that will be invalidated — and therefore the importance of professional legal advice when drawing up the agreement is decisive.
Boundaries and Exceptions: What Is Permitted and What Is Prohibited
The latitude to establish different arrangements in a financial agreement is limited to assets subject to balancing alone — that is, assets accumulated during the marriage and to which the Spousal Property Relations Law applies. A provision transferring private property not subject to balancing, such as an asset received by inheritance or as a gift, to the other spouse in the event of death — will be void. Likewise, a provision leaving the widower or widow without any share in the assets will be regarded as an invalid excluding provision.
The courts adopt an approach of upholding interpretation toward financial agreements that have been duly approved. The distinction between an agreement concerning inheritance (which is void) and an agreement concerning estate assets (which is valid) is exceedingly subtle, and therefore the court will prefer to uphold a financial agreement rather than to invalidate it. There is also a distinct public interest in encouraging financial agreements as a means of preventing future disputes and litigation.
What Is Important to Know Before You Sign
The understanding that the laws complement one another opens up genuine possibilities for sound economic planning. A financial agreement that addresses the event of death grants the couple certainty — they know in advance how the property will be divided, and can plan their future accordingly. The rigid formal requirements for entering into a financial agreement — approval by a court or a religious tribunal — in fact protect both sides against hasty decisions.
When preparing a financial agreement that includes provisions for the event of death, it is important to understand the difference between determining the scope of the estate and its division, to draft provisions in a positive and conferring manner rather than in a negative and excluding manner, and to ensure that the provisions relate to assets subject to balancing alone.
A financial agreement and a will are two complementary tools — when they are drawn up as a coordinated system in which each document supports the other and does not contradict it, it is possible to grant legal and economic certainty to the entire family. Proper planning begins with a professional conversation that examines the full picture — the legal, the economic, and the familial.
This article is based on principles established in recent case law of the Family Courts and the Supreme Court. The information presented is general and intended for enrichment only, and does not constitute legal advice or a substitute for individual legal advice tailored to the specific circumstances of each case. It is advisable to consult an attorney specializing in family law and inheritance law before making legal decisions.
