Protecting your children’s inheritance from divorce

Family relationships are complex and constantly changing. Whether it is your divorce or that of one of your children, a marriage breakdown changes dynamics. While you may maintain the most amicable of relationships with the other party, it’s important to ensure you have plans in place to protect your children’s financial future.

Here are four tips to ensure you are protecting your children’s inheritance from the impacts of divorce.

#1 Understand the intention and plan early   

Often when talking about protecting wealth from divorce, there is a misconception that it is about ‘winning and losing’ but this is simply not the case. It’s about ensuring everyone’s interests are protected and that all parties can make decisions with a clear head.

That’s why it is critical to put plans in place as early as possible, because once the emotions of a divorce come into play, it can be hard to reach a solution, and it may only be the lawyers who come out the other side happy with their finances.

#2 A binding financial agreement can protect everyone

If you or a loved one is getting married, it just makes financial sense to consider the future. A binding financial agreement is the best way to protect everyone’s interests as it sets out a clear split of finances in the event of a breakdown. It may not be romantic, but it is a sensible idea, as you simply don’t know what the future holds.

You can (and probably should!) create this agreement hoping you’ll never need to use it – but if the day comes when you do, it will take some of the stress out of the situation and you’ll likely be very grateful you have an agreement in place.

For those who are already married, it’s not too late to consider this type of agreement. While it can be an uncomfortable topic to raise, it’s really helpful to remember that you are doing this to protect each other and discuss it in these positive terms.

In a divorce situation, emotions are heightened, and it can be hard to think clearly about what makes sense for you, your partner and your children. An agreement like this gives you time to consider your options, discuss any potential outcomes with your partner in a dispassionate way, and come to a mutual agreement.

#3 A comprehensive estate plan is a must

When it comes to intergenerational wealth transfer, divorce can have a substantial impact. Having a comprehensive estate plan is critical to ensure your wealth stays in your family.

One tool that can be particularly helpful is the testamentary trust. This is a trust that will be set up upon your death, and forms part of your will.  Essentially, instead of money going directly to your children, it is managed via a trust, with an appointee and a trustee.

If a divorce occurs after your death, funds in this trust are more likely to be protected from the division of assets.  It’s worth noting that the Family Court does have the power to include all types of trusts in divorce settlements, however, testamentary trusts are more likely to be considered separate to marital assets, if set up correctly. If, however, you give your child direct inheritance of assets or cash, this immediately becomes part of the marital assets and you have no avenues to keep the wealth in the family.

#4 An expert team that can work together is critical

When it comes to protecting and/or dividing marital assets, most people will seek legal advice as their first port of call. And, of course, this is critical, but it’s important to speak to a financial adviser too.  At Apt, we work closely with your other professionals, like your lawyer, to make sure you receive integrated advice and planning.

A divorce is a significant life change, that can change your life goals, values and what’s important to you.  A financial adviser can help you understand your financial position, how much you will need to achieve your new goals, and how to best manage your divorce settlement to ensure you can live the life you want.

If you want to find out more about protecting your wealth, contact Apt Wealth Partners to discuss how we can help you live for today while planning for tomorrow, reaching your financial goals and ensuring you can leave the legacy you want.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances