Let’s analyse this hypothetical scenario; There is a dispute involving a future inheritance, where one party is expecting a substantial sum from their mother's estate, the question arises whether the mother's will is considered a disclosable item under the Duty of Disclosure, especially considering she is a third party. Of particular consideration is the fact that the mother is alive and therefore she would be a third party in the proceedings.
As a fundamental principle outlined in the Family Law Act 1975 (Cth), parties engaged in any family law dispute, spanning from divorce proceedings to property settlements or children custody disputes, are mandated by law to furnish each other with complete and candid disclosure of all material facts. In family law proceedings concerning financial disputes, transparency is important regarding financial circumstances. Parties involved are obligated to provide comprehensive information and documentation showcasing their financial standing, encompassing assets, liabilities, income, and personal expenditure. This entails the submission of both physical and digital records outlining earnings, financial interests, and debts. Mere provision of bank records or pay slips may fall short of fulfilling the mandate to disclose all valuable property under one's control.
In marriage proceedings, these stipulations are delineated within the Federal Circuit and Family Court of Australia (Family Law) Rules 2021. Central to this framework is the General Duty of Disclosure as outlined in Rule 6.06, compelling each party to offer forthright and complete disclosure of pertinent information to the court and all other parties involved, within a reasonable timeframe. This obligation extends across both financial and parenting proceedings, with non-compliance carrying potential repercussions such as the exclusion of undisclosed evidence or penalties for contempt of court. Crucially, this duty initiates from the outset of proceedings and persists until their culmination, underscoring its criticality throughout the legal process.
The Duty of Disclosure for Documents mandates an expansive scope of disclosure, encompassing any document within the possession or control of the disclosing party that bears relevance to the proceedings. This encompasses a broad spectrum of financial elements, ranging from earnings and income sources to property holdings, irrespective of ownership or beneficiaries. Additionally, any transactions involving property within the year preceding or succeeding separation, with potential implications on claims, must be disclosed. Failure to adhere to these stringent disclosure requirements can yield severe consequences, including the potential exclusion of evidence or legal penalties. Thus, strict adherence to these disclosure norms is imperative to ensure the integrity and fairness of the legal process in family law proceedings.
In our scenario, while disclosing information about the mother's will might seem relevant to understanding the party's future financial situation, a complication arises when examining the legislation, particularly Rule 6.06 on the Duty of Disclosure in financial proceedings. Rule 6.06 (2) stipulates that the duty of disclosure applies specifically to financial proceedings. However, subsections (3) to (9) of this rule do not apply to a party in a property proceeding who is not directly involved in the marriage or de facto relationship under consideration, unless their financial circumstances bear relevance to the issues in dispute. In light of this provision, the question of whether disclosing details about the mother's will falls within the scope of the Duty of Disclosure becomes more nuanced. Since the party in question is not directly involved in the marriage or de facto relationship under scrutiny, their obligation to disclose information about the mother's will may depend on whether their financial circumstances are deemed relevant to the ongoing dispute.
Parties involved in family law disputes bear a paramount duty to provide comprehensive and candid disclosure of their financial circumstances, as mandated by Rule 6.06 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) which outlines the comprehensive duty of disclosure required in property matters within family law proceedings. Prior to the first court event, each party must serve specific documents on the other party, including copies of taxation returns and assessments, documents displaying superannuation interests, and, if applicable, recent business activity statements (BAS) for parties with an Australian Business Number (ABN) or financial statements for entities in which the party holds an interest. This duty, as articulated in the decision of Briese and Briese (1986) FLC 91–713 at 75,180, is deemed to be "at the very heart of cases concerning property and maintenance."
Rule 13.05 of the Family Law Rules 2004 reinforces the obligation of full and frank disclosure in financial cases, requiring parties to file and serve a financial statement along with their application or response. Furthermore, Rule 13.07 emphasises the necessity of disclosing relevant documents within the parties' possession or control, ensuring transparency and fairness in the proceedings.
How is Potential Future Inheritance Treated
The consideration of prospective inheritances in property settlements within family law proceedings hinges on several key factors. Generally, if a party anticipates receiving an inheritance in the future from someone who is still of sound mind and capable of altering their will, this expectation is not typically deemed relevant to the property settlement.[1] The rationale behind this is the inherent uncertainty surrounding such inheritances, as the person making the bequest retains the ability to modify their will at any time, potentially altering the anticipated inheritance.
However, if the anticipated inheritance stems from someone who has lost testamentary capacity, meaning they are no longer capable of changing their will, then this prospective inheritance may indeed be relevant to the property settlement. In such cases, while the expected inheritance is not treated as a current asset, it may be viewed as a potential financial resource and could influence the settlement discussions. Nevertheless, there is no absolute rule dictating that a prospective inheritance must be factored into the property settlement. Each case is assessed based on its individual circumstances and merits.[2]
In instances where a party is slated to receive a significant and guaranteed inheritance at the time court proceedings are underway, the other party may opt to seek an adjournment of the proceedings. This pause allows for the consideration of the impending change in the beneficiary's financial circumstances, which could substantially impact the division of assets between spouses. In the case of Moritzen v Moritzen [2018] FCCA 1073, a pivotal aspect of the property proceedings between Ms. Moritzen and Mr. Moritzen following the dissolution of their 33-year marriage revolves around the wife's potential future inheritance. The legal proceedings, initiated by the wife in March 2016, culminated in a final hearing in October 2017 after multiple hearings and adjournments. This case dealt with the wife's likely inheritance from her mother, the husband argued that it should be factored into the proceedings under s 75(2)(o) of the Family Law Act. Although there was no direct evidence regarding the testamentary intention of the wife's mother, the court acknowledged the likelihood of the wife receiving an equal share of her mother's estate. The court deemed it unjust to disregard this probable inheritance, particularly given the advanced age and health condition of the wife's mother. Despite estimates ranging between $2,500,000 and $2,600,000, the court cautioned against precise calculations due to potential intervening factors such as market fluctuations and medical expenses. Therefore, the court acknowledged the relevance of the future inheritance in a general sense rather than relying on specific monetary figures. At [131] of the judgement it is stated:
For these reasons, in my view it would be unrealistic and not just and equitable to ignore the wife’s probable future inheritance, especially in light of her mother’s very advanced age (99 years) and health problems already discussed. I find that it is sufficiently proximate to be taken into account.
Similarly, in the case of Manx v Jenner [2009] FamCA 1264, where both parties had potential expectations of inheritances, the court recognised the likelihood of future inheritances but opted not to assign current calculated values to them. Instead, the court considered them in a general manner, acknowledging their existence while refraining from attributing specific monetary values due to various unpredictable factors such as market fluctuations and potential medical expenses. A number of legal authorities offer guidance on determining the relevance and appropriate treatment of potential inheritances in family court proceedings. The cases of White & Tulloch v White and De Angelis & De Angelis provide significant insight into the treatment of prospective inheritances in family law property settlements.[3]
In White & Tulloch v White, the court emphasised that the relevance of an expectancy of inheritance will vary depending on the nature of the claims being made and the specific circumstances of the case. For instance, if claims are solely based on contributions, an expectancy of inheritance may not be deemed relevant. However, if the claims involve factors outlined in section 75(2) of the Family Law Act, the connection between those claims and the potential inheritance needs to be carefully analysed. While expectancies of inheritance may not be relevant in many cases, their significance may vary depending on the nature of the claims being made and the specific circumstances of each case.
The court in White & Tulloch also highlighted scenarios where prospective inheritances might be considered relevant, such as when a testator has already made a favourable will but lacks testamentary capacity, or when there is evidence of imminent death and a significant estate is involved. Conversely, mere assertions of potential inheritance without substantive evidence were deemed speculative and irrelevant.
In De Angelis & De Angelis, the court reiterated the absence of an absolute rule regarding prospective inheritances and emphasised the wide discretion of the court under section 79 of the Family Law Act. The case involved a situation where the wife was expected to inherit two properties valued at $500,000, and the court concluded that it would be unjust to disregard these anticipated inheritances in determining the property settlement claim. The court considered factors such as the aunt's lack of capacity to alter her will and the substantial improvements made by the husband on the properties in question.
Additionally, the case of MacDowell & Williams provides further insight into the treatment of prospective inheritances.[4] In this case, a subpoena was sought for the production of testamentary documents of the wife's parents, who were aged 75 and 77 at the time. The husband contended that the wife would inherit a significant proportion of her parents' estate, valued at over $20 million. However, the wife's parents affirmed that they were in good health and possessed full testamentary capacity. Additionally, they were still actively engaged in their investment business. The court exercised discretion and set aside the subpoena, emphasising that there was no compelling reason to believe that the wife would receive any inheritance in the near future. Given the parents' good health and ongoing involvement in their business affairs, the court deemed it speculative to assume that any testamentary directions regarding the wife's inheritance were imminent or certain.
Conclusion
Financial disclosure within family law proceedings is essential for ensuring fairness, transparency, and equitable outcomes. From the foundational duty outlined in Rule 6.06 of the Family Law Rules to the overarching principles of full and frank disclosure, parties are obligated to provide comprehensive details of their financial circumstances.
Through cases such as White & Tulloch v White and De Angelis & De Angelis, we've seen the courts' nuanced approach to considering prospective inheritances and their impact on property settlements. While potential inheritances may not always be relevant, their significance is evaluated on a case-by-case basis, guided by the principles of justice and equity.
Disclaimer: The information provided here is for educational purposes only and should not be considered legal advice. If you need legal assistance, we recommend contacting Carter Dickens Lawyers or consulting a qualified attorney. Legal matters can vary based on laws and regulations, and it is important to seek professional advice for your specific situation.
[1] White and Tulloch v White (1995) FLC 92-640.
[2] De Angelis & De Angelis [1999] FamCA 1609 – The no absolute rule in relation to prospective inheritances and that the court has a wide discretion.
[3] White and Tulloch v White (1995) FLC 92-640; De Angelis & De Angelis (2003) FLC 93-133.
[4] MacDowell & Williams [2012] FamCA 479.
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