In divorce, your inheritance may not be as secure as you think. As Australia enters a period of significant intergenerational wealth transfer, many people mistakenly assume inheritances are automatically protected in divorce settlements. That assumption can prove to be a costly mistake.
As family lawyers increasingly see inheritances, homes, businesses and future windfalls become points of contention in divorce settlements, more couples are turning to Binding Financial Agreements (BFAs), commonly known as prenups, to safeguard wealth and provide certainty in uncertain times.
What is a Binding Financial Agreement?
A Binding Financial Agreement (BFA) is a contract between a couple, being de facto, or married, outlining asset division in case of a relationship breakdown. These are go verned by the Family Law Act 1975 (Cth) and can be made before, during, or after a marriage or de facto relationship. The BFA sets out how assets, debts, investments, inheritances and other financial resources will be treated if the relationship later ends.
Unlike a court ordered property judgment, where parties have no control over the outcome, a properly drafted BFA can provide certainty and control, allowing parties to agree in advance how financial matters should be resolved, rather than leaving it to the Federal Circuit and Family Court.
Why Inheritance Protection Is Becoming a Greater Priority:
Inheritances are not “off limit” by default
Contrary to popular belief, inheritances are not automatically protected from division in a separation just because they come from a will. Courts may include an inheritance in the asset pool, especially if it was received during the relationship and has been mingled with joint finances.
Even if an inheritance is excluded from the formal division of property, it can still be treated as a “financial resource” for assessing entitlement and needs. Therefore, the inheritance can influence spousal maintenance payments or the overall balance of a settlement.
Growing Awareness & Demand for Protection Strategies
Legal practitioners across Australia report rising demand for BFAs and other asset protection strategies such as trusts, wills and loan agreements, especially among:
- Couples entering second or later relationships
- Families helping adult children with property purchases
- Those with significant assets or inheritances at stake
- People entering relationships later in life with existing wealth
- People wanting to “control” the outcome in relation to asset division upon separation
This trend reflects growing financial literacy and a shift in perspective, with more people recognising prenups as a practical planning tool rather than a pessimistic measure. Modern day couples becoming more educated, and discussing these intricacies in advance has the ability to strengthen a relationship – as each party is already well aware what will occur if a separation was to occur in the future.
Impact on Spousal Maintenance
Inheritances may affect spousal maintenance for both the payers and recipients.
For recipients of spousal maintenance, if an inheritance is received, the recipient may lose entitlement to spousal maintenance if they can now support themselves.
Conversely, for payers, retained inherited wealth might increase obligations in settlements where the other party has demonstrated ongoing financial need.
Impact on Future Inheritances
While future inheritances may affect maintenance orders, they are generally safe from ex-spouses after divorce proceedings. However it is important to note, there are limited circumstances where this may not be the case.
A BFA can be drafted to address both current assets and future inheritances, for example, expected estates or anticipated gifts that may arise during a relationship. Though not bulletproof, BFAs are highly useful tools for excluding or limiting an inheritance from property division in the event of a divorce.
Important Legal Considerations:
For a Binding Financial agreement to be enforceable, there are legal conditions that must be met:
- Independent Legal Advice: Each party must seek independent legal advice from a family law specialist before signing a BFA, this ensures that both parties respective interests are adequately protected. Importantly, your solicitor will assist you in negotiating terms on your behalf to strengthen your position.
- Voluntary Agreement: Both parties must enter the agreement willingly, without duress or coercion.
- Fair and Reasonable Terms: While the law does not require the agreement to evenly divide the assets, reasonable terms can become an issue, especially if there are small children at the date of separation and one party (the significantly weaker one) wants the BFA set aside.
- Proper Execution: The Agreement must be in writing and signed by both parties, often a witness, and the parties’ respective legal representatives.
Summary – Binding Financial Agreements
Inheritance protection is no longer a niche concern, it’s an important part of modern relationship planning in Australia. With rising awareness and demand, Binding Financial Agreements are increasingly recognised as effective tools for:
- Safeguarding wealth across generations
- Avoiding costly, emotionally fraught litigation
- Providing certainty about financial rights and responsibilities
- Quick to resolve matters
If you have significant assets now or anticipate future inheritances, talking to an experienced family lawyer before life’s inevitable changes occur could be the most important step you take toward securing your financial legacy.
RAMSDEN FAMILY LAW – HOW WE CAN HELP
If you are considering whether a Binding Financial Agreement is right for you or require independent legal advice to help you prepare or review an Agreement, please contact our experienced family law specialists at Ramsden Family Law. We are available to provide you with the necessary legal support and guidance to protect your best interests during this time.
It may just be the best investment you will ever make.
Our team of dedicated family law specialists brings extensive experience to the table.
The content of this article is intended to provide general guidance to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.
