Protecting an Inheritance from a Family Law Claim

By Alison Hiscocks – Hiscocks Lawyers

You may have made a Will and think that you have done all you can to provide for your children after your death. But what happens if one of those children divorce ?

Many people don’t realise that their children’s divorce can affect their estate planning.

An inheritance or the expectation of an inheritance can have a significant impact on the division of matrimonial property between divorcing spouses.

However, it may be possible to reduce the impact of your child’s divorce by using a testamentary trust.

The family court may characterise an inheritance as either :-

  1. an asset of the marriage so it becomes part of the matrimonial property pool and is able to be divided between the divorcing spouses in a manner deemed by the Court to be just and equitable; or
  2. a financial resource meaning it cannot be divided between the parties although the court will consider whether or not there needs to be an adjustment to the division of matrimonial assets as a result of one party having the benefit of the financial resource.

The creation of a trust has the effect of separating the legal and beneficial ownership of assets and may therefore protect a beneficiary’s inheritance from Family Law proceedings.

In deciding how to characterise an interest in a testamentary trust, the Court will consider the degree of control the party to proceedings exercises over the trust. For example, if the person is the sole trustee and only recipient of distributions from the trust then the Court is more likely to look beyond the trust and consider it to be an asset of the marriage.

However, if there is a degree of independence in the control of the trust (for example, if the party to the proceedings is not a trustee) then the court is more likely to treat the interest in the trust as a financial resource.

Thus, an effective testamentary trust increases the likelihood of an inheritance being characterised as a financial resource so it is not divided between the divorcing spouses.

In the case of GAU -v- GAV

[2014] QCA 308 the Court was asked to alter the will of an elderly lady (the Testator) after she lost capacity due to Alzheimers disease.  Her will was made in 2008 and was largely standard and provided the estate would be left to the husband and her children.  There were also some specific gifts made to her son’s wife.

In 2014 the son separated from his wife.

The testator’s husband applied to the court for a codicil to be added to the will for the creation of a testamentary trust and to remove the gift of jewellery to the now estranged wife of her son.

The purpose of the testamentary trust was to ensure that the son did not directly receive the benefit of any inheritance which may in turn have been considered an asset of the marriage.

Obviously, the son’s wife objected on the basis that the sole purpose of the application was to defeat Family Law proceedings.

On appeal, the court decided that while the codicil may impact on the Family Court proceedings, the amendments sought to be made to the Will were changes that the Testator would have made at that time had she had the capacity to do so.

If protecting an inheritance from your child’s spouse is important to you, you should speak to us about the establishing a Testamentary Trust as part of your estate planning.