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This is the second article in a series addressing the ways in which the wealth you have accumulated during your lifetime, or inherited upon the death of another person, can be needlessly lost. We examine ways that the risk of this loss can be reduced or prevented altogether.
The information released by the Australian Bureau of Statistics (ABS) shows that the number of divorces granted each year is slowly increasing. In 2017 alone, the divorce rate increased by 5.2%. This rate of relationship breakdown does not consider the number of marriages that end in separation but not divorce, or de facto partnerships that come to an end. The ABS acknowledge that the extent of family breakdown is not easily measured but is expected to be higher than divorce statistics, which indicate 40% of all marriages end in divorce.
All these situations give rise to rights to initiate property settlement proceedings that could result in a redistribution of wealth between the persons in the former relationship. This is often seen as a risk of entering a relationship, however where it results in the redistribution of inherited wealth the result is far less palatable to the original beneficiary of that wealth and his or her extended family members.
Powers of the Family Law Courts
The Family Court of Australia, and in some circumstances, the Federal Circuit Court of Australia, has wide ranging powers to transfer and divide the property and assets of separated spouses and de facto couples undergoing a property settlement following relationship breakdown. The purpose of a property settlement is to bring an end to the financial relationship between the couple and as a result needs to cover all of the property (assets and liabilities) taking into account the whole of the financial situation of each person.
The Family Law Court has the power to make settlement orders that alter the interests of each person’s assets directly and in respect of assets held by entities controlled by one of the couples, such as a trust or a company. Consequently, placing assets in the name of other entities will not necessarily avoid the reach of family law.
If you need assistance in relation to your divorce, property settlement or other family law matters, talk to our experienced family lawyers at Rapid Legal Solutions today.
If you find yourself in a situation where one or more of your beneficiaries is in a tumultuous relationship or is currently single or in a seemingly happy relationship but you just don’t want to leave your beneficiary’s inheritance to chance given the statistical odds of relationship breakdown, we recommend that you contact Rapid Legal Solutions to discuss how a specially constructed testamentary trust can be of assistance.
What is a Testamentary Trust?
A testamentary trust is a trust established under your Will upon your death. Instead of gifting your assets direct to your chosen beneficiaries, you gift those assets to one or more trusts established for the benefit of those beneficiaries. Testamentary trusts have many asset protection and tax benefits.
It is usual for the main beneficiary intended to benefit from the testamentary trust to be its trustee and to have control of the trust, including having the power to appoint and remove the trustee. This allows the beneficiary complete control over how the trust’s assets are invested, and its income and capital are distributed. However, such power and control expose the assets of the trust to the reach of the Family Law Courts if the beneficiary with this control has a relationship breakdown.
It is possible to structure a testamentary trust to ensure that this does not occur. Similar structuring can also be done to existing discretionary or family trusts that have been set up during the life of the will maker, protecting them from the reach of the Family Law Courts also.
Talk to Rapid Legal Solutions today about whether a testamentary trust is right for you and your beneficiaries, or whether you should consider amending the clauses of an existing family trust deed.
Binding Financial Agreement
Carefully structuring your trusts to avoid the reach of the Family Law Courts is a good start, however it only prevents the distribution of the trust’s assets to an estranged spouse by keeping the trust’s assets out of the pool of marital assets. The assets of the trust may still be seen as a future resource for your beneficiary and could result in that person receiving a much smaller portion of the assets that he or she has accumulated with his or her estranged spouse.
Depending upon how the couple accumulated their assets and the size of those assets, it may be worthwhile encouraging them to enter into a Binding Financial Agreement to address how their assets are to be divided in the event of a relationship breakdown. This would assist in avoiding a situation whereby your beneficiary retained his or her inheritance at the cost of other assets that he or she has worked hard to accumulate and, in turn, being not much better off.
Despite often being referred to as a pre-nuptial agreement, a binding financial agreement can be entered into by the parties either at the start of the relationship, during the relationship or after the relationship breaks down.
If you are interested in more information about binding financial agreements, contact Rapid Legal Solutions and speak with one of our experienced lawyers.
If you would like assistance or further information in relation to how to structure your Will or Estate Planning to protect it against the relationship breakdown of your children or other beneficiaries, or would like more information on Binding Financial Agreements, contact Rapid Legal Solutions on (07) 4755 9100.