Family law separations and protecting generational wealth; is this an oxymoron?

01 June 2012 Topics: Family law

In an era where many families have accumulated substantial wealth through generations of hard work or entrepreneurship, it is becoming increasingly common for family lawyers to be asked by clients (or their relatives) to quarantine their holdings from current spouses and new partners for the benefit of their children and other family members.

It is well-known that prudent family and estate planning, including the use of discretionary and testamentary trust structures, can be helpful in maintaining generational wealth. This is typically achieved by having the family assets ‘isolated’ from those held by individual family members, such that the law does not view the family members as having a fixed or controlling interest in the family assets.

Parties are also able to enter into financial agreements before or during a marriage or de facto relationship to provide for the distribution of their separate and joint assets in the unfortunate event of separation.

However, as people are now living longer than ever before and an increasingly large number of our population begin to suffer from degenerative diseases, such as dementia, what happens if physical separation is forced on an otherwise happy couple due to the poor health of one spouse?

If there are no family structures in place, can generational wealth be protected or are the parties’ assets simply divided in accordance with the established four-step property settlement process?

The recent Full Court decision in Stanford & Stanford [2012] FamCAFC 1 (Stanford) provides a helpful insight into the court’s approach to such matters.


In that case, an elderly couple were living separately as a result of the wife’s physical and mental frailty. The couple otherwise considered themselves to be in a loving marriage and had no desire to end their relationship. As the wife required ongoing care in a nursing home, her legal guardian filed an initiating application in the Federal Magistrates Court seeking for the couple’s joint home to be sold and for the net sale proceeds to be utilised to pay the wife’s care expenses. The husband was living in the joint home at the time.

The husband placed $40,000 into the wife’s bank account and proposed, through his legal guardian, that the wife’s care costs be met from her income. To the extent that she could not pay all of her care costs, the husband proposed to meet the shortfall.

At the first hearing, the court agreed with the wife’s position and was of the view that it was necessary to determine the financial aspects arising from their marriage to avoid further litigation. The husband was ordered to pay the wife a substantial sum of money; the likely consequence of which was he would be forced to sell their joint property to raise the required funds.

The husband successfully appealed this decision. The Full Court found, among other things, that the first judge should have considered other alternatives, such as the payment of maintenance, rather than making orders for property settlement. The Full Court was of the view that the wife did not have a need for property settlement given the circumstances of the case.

Implications of Stanford

The decision in Stanford shows that the courts will not make final property settlement orders in circumstances where the parties remain in a loving relationship and where there are alternative options available. This position is likely to sit well with those concerned about the courts forcing property settlements on unwilling parties and for families who fear that generational wealth will be lost through a money-hungry power of attorney or a court-induced separation.

However, the facts of each case will dictate the approach taken by the court. If the wife in Stanford had deteriorated to a point where she no longer recognised the husband and if the husband had no capacity to contribute to her care expenses, the Full Court may have adopted an entirely different approach.

Accordingly, it is clear that the protection of individual and family wealth should not be left for the court to determine.

It is critical for parties to utilise financial agreements and obtain structuring advice to provide some protection from future claims by an ex-partner so they or persons they nominate can control the future distribution of family assets when they pass away.

Additionally, there must be consistency between the terms of any financial agreements and estate planning documents to minimise the potential for an application against the estate to be successful.

The failure to put in place such safeguards may increase the risk of a challenge to the client’s Will by a former partner, or their children.

At Cooper Grace Ward we have very experienced family law, estate and commercial workgroups that regularly work together to help clients with asset protection, estate planning and structuring needs.

For further information please contact Justine Woods or Craig Turvey of Cooper Grace Ward’s family law team via +61 7 3231 2444.



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