How to protect your child’s inheritance from their spouse: lawyers

Cashed-up Australian parents are taking legal precautions to ensure their child’s inheritance does not end up with a potentially undesirable spouse, such as establishing their child’s prenup.

Bronwyn Deane, Andrew Zbik and their children Emily, Addelyn and William at their home in Sydney. Picture: John Feder

Cashed-up parents are taking exceptional legal precautions to ensure their child’s inheritance does not end up in the hands of a potentially undesirable spouse, such as calling up family lawyers themselves to get the ball rolling on their child’s prenup, or establishing testamentary trusts before their child can even walk.

Family lawyers, wills and estates lawyers and financial planners have cited an uptick in services from prudent mothers and fathers saying that as more children dip into the “Bank of Mum and Dad” and divorce rates continue to rise, parents are taking extra steps to ensure that their hard-earned wealth remains in the family.

Pearson Emerson Family Law partner Sheridan Emerson said the trend was being driven by baby boomers seeking to protect their assets from outsiders.

“They’re the wealthiest generation,” she said.

“They’re land-rich and there’s an enormous concern about protection of inheritance among that generation.”

Ms Emerson said it wasn’t uncommon for her to receive ­contact first from the parents.

“It’s not unusual for the parents, the older generation, to be the party that first makes contact with you as a family lawyer,” she said. “The children aren’t coming in themselves, unless they’ve ­generated the wealth themselves. That concern about inheritance is driven by the parents, not the child.”

Nearly one in two (44 per cent) Australian marriages ends in divorce, according to ABS statistics released in December. Although the divorce rate has dropped from last year – when it unexpectedly ­shifted up as a hangover from the pandemic – it is still enough to ­encourage parents to take legal precautions to protect assets.

A prenup – technically known as a binding financial agreement (BFA) – comes highly recommended by family lawyers and fin­ancial planners Australia-wide, who say they can prevent a messy splitting of assets once a couple parts ways.

Dimocks Family Lawyers principal Chris Dimock said: “It is not uncommon for the parents in a situation where there are children getting married to say to their son or daughter, ‘Look, we would feel more comfortable about the match if you were to enter into a prenup with your partner’.

“The prenup would provide that if the couple were to go their separate ways, then if during the relationship one of them received an inheritance, that inheritance would remain the property of the party who received it.”

Mr Dimock said there was “no such thing as a water-tight BFA” but it was always better to have one than not, especially if you were the financially stronger party.

Prenups were more common now than ever, he said, because laws regarding them had settled since they were first introduced more than 20 years ago.

“When they were first introduced, there was a raft of litigation where people tried to challenge the BFA,” Mr Dimock said. “Things have settled down. Successful applications to set aside BFAs are certainly less common. So we, as family lawyers, are saying to our clients that there’s a greater level of protection in these BFAs than when they existed even five years ago.”

Lander & Rogers family law specialist Eleanor Lau said ­families were simply becoming more comfortable with the idea of prenups. “Culturally if you look at 10 or 20 years ago, people would avoid talking about it because it’s not very romantic,” she said. “Now people are more open about it.”

The Bank of Mum and Dad over the past year injected more than $2.7bn into the property market, with about 15 per cent of borrowers tapping their parents for financial help.

Parents who wish to keep that money in the family in the instance of a break-up should list it as an “official” gift under a prenup, John R Quinn & Co family lawyers owner John Quinn said.

“You would include a clause that says if you inherit something or get a specific gift from your family, then that’s excluded,” he said. “Mainly what you have to do is require the child and their fiance to sign an agreement that says that anything that comes from the family is excluded and will remain in the property of the child.”

Alternatively, parents could give the money under a “properly documented loan agreement” to ensure that if anything were to happen between the couple receiving the money, they could be paid back.

Meanwhile, CreationWealth financial planner Andrew Zbik and his wife, Bronwyn Deane, have set up a testamentary trust for their three young children, William, Addelyn and Emily.

“They are the beneficiary of the proceeds but it’s not in their name,” Mr Zbik said, explaining his decision. The trust was created to protect the children and avoid “those around them” having any influence over their financial decisions, he said.

“My child could be in a de facto relationship for two years and then break up, but if they’ve cohabitated then there are grounds for that partner to make a claim,” he said.

“Nothing is 100 per cent protected, but it goes a long way to ensure these funds are benefiting the children.”

Bridges Lawyers wills and estates partner Asheetha Jelliffe said she was more frequently being asked to advise clients who wished to protect their wealth from their children’s spouse.

She attributed the rise in interest to the rise in separation and divorce, the Bank of Mum and Dad funding their children, and a desire to “keep money in the family”. However, she said, there were no promises that the legal precautions would hold up forever.

“There are no guarantees as to how (the courts) will deal with the issue of testamentary trusts in the future, at the time of the parent’s death or loss of testamentary capacity to make a new will,” she said. “The law is a constantly evolving creature.”