New Relationships and Asset Implications.
What happens to the family inheritance when one parent gets a new partner? The area of relationship property is fraught.
This scenario offers an example to help explain why...
Bev and Peter had been married for forty years and had two adult children. They had owned a very successful business which they had sold four years ago and were now enjoying retirement. They had a family trust which had owned the shares in the business, their family home, bach and a couple of investment properties.
However, after selling the business, their accountant told them that there probably wasn’t a lot of benefit in keeping the trust, so they decided to simplify their affairs and wound the trust up. Now all of their assets were in their personal names.
Bev and Peter had been on a cruise around the South Pacific when sadly, Bev had a massive stroke. She was air ambulanced to Brisbane, but unfortunately died a few days later. Peter was beside himself with grief, and their children and grandchildren were devastated.
About six months after Bev’s death, Peter met a lady at his local café, Jan. She was twenty odd years younger than Peter, but he very quickly became smitten and found himself going to the café every day in the hopes of seeing her there. He asked her out, found that the attraction was mutual and very quickly Peter found himself head over heels in love with Jan. Peter’s children were shocked to say the least. They were still reeling from the grief of losing their mother and they thought that Peter was too. They were astounded to think that he was now in a new relationship.
Peter and Jan’s relationship progressed rapidly. It wasn’t long before she had moved in with him and they were planning renovations to the family home.
They also spent a lot of time at the family bach and Peter was thinking about selling one of the rental properties and using the funds to help Jan with a business she was thinking about starting.
Peter’s children didn’t know what to do. One of their friends suggested they go and see a lawyer to see what the impact of Peter and Jan’s relationship might be on the assets that had been Bev and Peter’s. The lawyer searched the titles to the properties that had been owned by the trust. She explained that as they had been transferred out of the trust to Peter and Bev’s joint names, Peter now owned all of the properties due to the laws of survivorship.
Even though Peter had owned the properties before his relationship with Jan, if he and Jan stayed together for three years or more, Jan would be entitled to half of the family home and quite likely half of the family bach as it was now being used for relationship purposes.
The rental properties were different. It would be much harder for Jan to say that they were relationship property, but if Peter sold those and used the cash for relationship purposes then that was also at risk. The irony was that if Peter and Bev had retained the family trust, the value of the assets at the start of Jan and Peter’s relationship would be protected. However, that was not the case.
The children were upset. The lawyer explained that Peter could enter into a contracting out agreement with Jan, but when the children suggested that to Peter, he was adamant that he didn’t want to do that. He was confident that Jan would never make a claim on his assets and he didn’t want to upset the fairytale nature of their relationship by talking about pre-nups with her.
While some of the protection’s trusts have afforded in the past have been eroded by case law, they still play an important part in asset protection. Serious consideration should be made before they are wound up, depending on the extent of the assets in the trust.
If you feel you could use some specialist advice, don’t hesitate to contact the Trusts & Wealth Protection Team.
