Divorce and Estate Planning

The effects of family breakdown extend beyond the personal to the economic, including intergenerational wealth transfers such as those created by wills.

The Family Court has extensive powers to make orders in relation to the ‘property’ and ‘financial resources’ of couples whose relationship has failed and one or both of whom have asked for its’ assistance. What is often not appreciated is the breadth of the terms ‘property’ and ‘financial resources’, and how this can have an impact on even the most carefully prepared estate plans and wills.

What is more, the power of the Family Court has extended beyond marriages, and now includes de facto relationships in most states, including, South Australia.

It is not unusual for the parents of a couple to assist them financially, either during the life of the parent, or by will. The general rule is that the financial assistance will be treated as the property of the person whose parent provided it, and then, as a contribution by that person to the joint assets of the marriage. From there, the Family Court will apply its usual criteria for deciding what to do with it (a four step process that we will address in a later article). Suffice to say, it is almost never the case that the person contributing the money will get to keep it, and the earlier in the marriage the contribution is received, the more likely it is to be treated as owned jointly.

A more contentious question is whether the Family Court ought to take into account an expectation or likelihood that a person may receive an inheritance after separation. This is a difficult area, and in general, the more likely it is that one of the parties will receive an inheritance, and the more likely it is to be received soon, then the more likely it is to be taken into account.

Testamentary trusts may be used for a variety of reasons, including an attempt to preserve and protect the assets of the trust from the reach of the Family Court. The effectiveness of these devices is variable, and in general would require one to ensure that a party to the marriage in question does not control the trust. This is where the difficulty can arise. Who, if not the intended beneficiary, ought to control the trust, and how can you be sure that the intended beneficiary will in fact benefit? Similar comments can be made about trusts made during the life of the trust’s creator.

As is often the case, the bigger the inheritance, the more likely it is to be fought over. And the Family Court can be a very expensive place to have a stoush. Early and effective legal advice can save you and your loved ones a great deal of money.