Estate planning and family law: Protecting the inheritance from family law claims

How does the Family Court treat inheritances?

When the Family Court is considering inheritances, it can treat them in two different ways.

Firstly, if the inheritance is effectively 'in the hands' of the separated child, then it will likely be treated as an asset of the relationship and available for distribution in the settlement. The High Court has previously found in Kennon v Spry (2008) FLC 93-388 that this can include assets which are held in a discretionary trust for multiple beneficiaries, if the trust is effectively controlled by the separated child. If an inheritance is received shortly before separation, the separated child would usually be given greater credit for this contribution than if it had been held by them for many years.

Secondly, the Family Court may treat an inheritance as a financial resource, which would mean that it is protected from distribution, but the separated child may consequently receive a reduced percentage of the assets which can be divided. Sometimes an inheritance which has not yet been received (e.g. if their parent is elderly, but not deceased) can also be considered as a financial resource.

Any Tips

There are a number of ways these concerns can be addressed, including:

1. A Binding Financial Agreement ("BFA") entered into by the child before or during their marriage or relationship. This can be an effective method to protect the inheritance, provided it is properly drafted. However, this requires the co-operation of the spouse and, additionally, an attempt by a parent to impose a BFA on their child in order to receive an inheritance might be a sensitive topic in the family!
2. A protective testamentary trust in the parent's Will. The goal of this trust would generally be to ensure that any inheritance will be treated only as a financial resource and not an asset. This is achieved by ensuring that the testamentary trust is not directly controlled by the child and is not obviously for their sole benefit. For more information on testamentary trusts, click here. Often, there is a fine balance to be struck between ensuring that your children can receive maximum benefit from an inheritance and ensuring that it is at less risk of a Family Law claim.

How can Sharrock Pitman Legal help me?

We have helped many people with testamentary trusts and binding financial agreements, and it would be our pleasure to assist you. We provide fixed prices. At Sharrock Pitman Legal, we have an Accredited Specialist in Wills and Estates Law. Call our Wills and Estates team on 1300 205 506 today if you require assistance.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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