How to Quarantine an Inheritance from Divorce

by Peter Magee on September 19, 2016

Zoe Durand

In an article published on 22 May 2016 by Noah Whittaker the question of “how to quarantine an inheritance from divorce” is explored.

Whittaker reports that: “now divorce is common, many couples do not get around to getting married, and often those who do divorce and remarry have children from both relationships. To complicate matters, there may well be more children from the new relationship. Combine these trends with increasing life expectancies and you get many opportunities for family conflict”.

Whittaker describes a hypothetical situation as follows:

“the parents, let’s call them Ron and Norma have retired in a comfortable financial position, but their daughter’s marriage is a bit fragile and potentially rocky. It is Ron and Norma’s wish that the daughter inherit their assets when they die but she is not particularly experienced in money matters – to makes matters worse her husband struggles with gainful employment. In fact, from time to time, Ron and Norma have had to assist their daughter and her husband financially”.

Whittaker explores the options that the parents have. They could adopt “a Laissez-faire attitude” and do nothing and continue to leave the money to their daughter in their Will.

Whittaker explores the “real possibility” that their daughters marriage will break down after she receives the inheritance and “the husband will walk out of the door with a big chunk of all those assets Ron and Norma spent their lives scrimping and saving to build up.”

Another option explored by Whittaker is to simply leave the daughter out of the Will. However this would create a significant amount of family angst and tension.

The option of also dividing the children’s inheritance before the parents die was also explored.

Whittaker then explored the option of getting the daughter and her husband to draw up a Binding Financial Agreement under the Family Law Act which would provide that if the daughter received an inheritance it would be retained solely by her in the event of separation. Whittaker states that: “if the document is done properly it will quarantine any inheritance from both the husband and the jurisdiction of the Family Court” and that “as always small preparations can save a lot of troubles down the track”.

I have been involved in several matters where the issue of an inheritance arose. There is a misconception that the spouse will automatically receive “half” of any inheritance received. However this is not necessarily the case. How assets are to be divided depends on the specific facts of the case.

It is also true as Whittaker points out that couples who are thinking of quarantining inheritances or any other large sum of money which they expect to receive could consider a Binding Financial Agreement during a relationship.

Whilst many people commonly think that a Binding Financial Agreement can only be done prior to marriage as a “pre-nup” as they are colloquially called, this is not true. A Binding Financial Agreement can be drafted at any point, for example prior to living together or prior to being married, during living together or during marriage and after separation.

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