Family wealth – inheritance protection agreements


Posted By and on 19/02/20 at 4:06 PM

In these days of increasing wealth transfer, the instances of a person in a relationship receiving a substantial gift or inheritance are more common than not. Perhaps more importantly, the size of inheritances is generally growing. When that is considered together with the very high cost of housing, ‘family wealth’ can be the difference between living within 10 kilometres of the CBD or 50 kilometres.

For the purposes of this article we will use the term ‘family wealth’ to cover inheritances, gifts and other financial benefits (ie. living rent free) that is received by a person in a relationship. Another way of looking at it is wealth that the person or their partner have not generated themselves.

When it comes to a relationship breakdown, a Court will include family wealth in the property to be divided. Now that does not mean necessarily that family wealth will be split 50/50 as soon as it is received. There can be any number of permutations, depending on the size of the family wealth relative to the other wealth of the parties, when it was received and how it was used (ie. prudently straight into the mortgage or not so prudently on a first class round the world holiday lasting 12 months focusing on the great casino precincts of the world).

When parties separate, it is the injection of family money that is often the most contentious and difficult to unravel when a couple is endeavouring to negotiate an outcome. There can be real uncertainty as to how the family wealth should be treated and what a Court will do with it.

WHAT IS AN Inheritance Protection Agreement AND WHEN IS IT DESIRABLE?

An Inheritance Protection Agreement (IPA) is an agreement specifically designed to protect family wealth received by someone in a relationship. Married and de facto couples can enter into an agreement whereby both parties agree that family wealth (whether already received, pending or not yet known) will be quarantined upon separation.  Other property of the relationship, generally being property that the couple generates from their own exertions, is not dealt with by the IPA. It is up to the couple to negotiate the split of that property or, failing agreement, the Court will step in.

An IPA represents a palatable compromise for a couple. The thought of a financial agreement is not particularly romantic. A couple may not wish to lock down the financial outcome if the unthinkable should happen, but rather wish to place their trust in one another to achieve a fair and reasonable outcome being reached upon separation. However they also have a desire to protect family wealth. Inevitably the family does too! An IPA meets the requirements of this situation perfectly, without the need for a comprehensive agreement which covers all property and spousal maintenance matters.

KHQ Lawyers - inheritance protection

 WHAT ABOUT OTHER CLASSES OF PROPERTY?

Similar to an IPA, a couple can enter into an agreement which quarantines a specific piece of property or asset and leaves other property to either be divided up by agreement or determined by a court if the fateful separation date should ever come to pass. Some examples where this could apply include:

  • An agreement which quarantines an entitlement in a business. This is especially relevant where there are third parties who may rely on the business for their livelihood. A family law claim could significantly undermine the viability of or even lead to the closure of the business.
  • Where a party owned significant property at the outset of the relationship and wishes to preserve it.
SO, WHAT SHOULD I BE AWARE OF?

If you do decide to implement an IPA, there are few things you should consider:

  1. For the IPA to be binding, it must adhere to the legislative requirements set out in the Family Law Act 1975. The IPA should be drafted by a lawyer experienced in preparing financial agreements.  You must obtain independent legal advice in relation to the implications of the agreement on the rights of each party before signing it.
  1. Ideally, the IPA should mitigate against risk to current and future inheritances. There should also be clear definitions as to when family wealth ceases to be family wealth upon being mingled with other property of the relationship. This can mean the difference between property being quarantined or not, and is critical to how the agreement operates.
  1. The timing and approach to having a conversation about an IPA is important. If a party knows that significant family wealth is coming their way, it makes sense to start the conversation with their partner about an IPA as soon as possible. They should give their partner time and space and understanding in allowing them to come to terms with the reality of the agreement and what it means. Exerting a lot of pressure on the partner to get it done quickly and with as little fuss as possible should be avoided at all costs.

We would welcome the opportunity to put you in touch with a member of our family law team.  Our team of specialists will listen to your circumstances, goals and concerns and can draft an agreement suitable to your needs.  Once the agreement is down on paper, our friendly experts can assist you in navigating each clause and negotiating any issues that arise.

If you want to know more about IPAs, financial agreements or anything else related to the family law realm don’t hesitate to contact Monica Blizzard, Greg Oliver or Kristina Antoniades.

KHQ Lawyers - Greg Oliver

Greg Oliver Principal Solicitor

Greg has been practicing law for two decades. He has a background in general practice and in recent times has focused exclusively on family law. He is an Accredited Family Law Specialist.

Greg... Read More

KHQ Lawyers - Angelo Mazzone

Angelo Mazzone Lawyer

Angelo commenced as a graduate lawyer with KHQ Lawyers in July 2019, having completed a Bachelor of Arts and Bachelor of Laws (Honours) at Monash University.

Prior to joining KHQ, Angelo worked... Read More