Blended families and money: protecting assets fairly

Just over one in ten Australian couple families with dependent children are now step or blended families, and that proportion has been trending upward for some years, according to the Australian Institute of Family Studies. Most blended families work well, but they introduce a layer of complexity to estate and asset planning that first families largely avoid. Once there are children from an earlier relationship, a current partner, assets accumulated jointly, and sometimes a former partner still in the picture, deciding what counts as a fair distribution stops being straightforward. It generally calls for more deliberate planning than the simpler default of leaving everything to the surviving spouse and expecting matters to resolve themselves in due course.

Establishing your own intentions

Fairness in this context rarely means identical treatment for everyone involved, and clients mean quite different things by the word once you ask them directly. Some want every child treated the same regardless of which relationship they came from. Others want to prioritise long-term financial security for a current spouse while ensuring that assets built up before the current relationship eventually pass to their own children. Others again draw a distinction between wealth created jointly during the current relationship and assets each partner brought into it. None of these positions is more correct than another, but working through them clearly, before any documents are drafted, is what allows a solicitor or adviser to build a structure that reflects your actual wishes rather than a generic default.

The limits of informal arrangements

A common approach in second marriages is to leave the full estate to the surviving spouse on the understanding that they will provide for the children of the first marriage when the time comes. This arrangement carries no legal force. A surviving spouse is free to change their own will at any point, may enter a new relationship, and may see a substantial share of the estate consumed by aged care or health costs over the years that follow. Whatever remains at their death passes according to their own will, which is under no obligation to reflect the deceased’s original intentions. However sincerely made, a verbal understanding does not bind anyone once circumstances change.

Testamentary trusts as a structural option

A testamentary trust, established through the will itself, is one way to balance ongoing security for a spouse against eventual protection of capital for children. A common structure gives the surviving spouse a right to income, or a life interest in a specific asset such as the family home, while preserving the underlying capital for children of an earlier relationship. This needs to be set up carefully. A life interest can complicate how an asset is assessed for Age Pension purposes, and the terms of the trust should be considered alongside the couple’s broader retirement income position, not just the eventual estate outcome. It will not suit every blended family, but it is one of the more effective mechanisms available where spousal security and generational preservation both need to be achieved at once.

Superannuation and binding nominations

Superannuation sits outside the estate and is not automatically covered by a will, which surprises a number of clients when they first hear it. Distribution is instead governed by a Binding Death Benefit Nomination lodged with the fund. Most default nominations lapse after three years, and where a lapsed or invalid nomination is in place at the time of death, the trustee exercises discretion over who receives the benefit, a process that can create real tension in a blended family where a current spouse and adult children from an earlier relationship are all potential claimants. A non-lapsing nomination, where the fund supports one, is generally preferable to a standard nomination that requires periodic renewal and can be overlooked. The tax treatment also differs: benefits paid to a spouse are generally tax-free, while benefits paid to non-dependent adult children can attract tax on the taxable component. Aligning the nomination with the will, and reviewing it at least every three years or after any major life event, is a simple step that is often missed.

Protecting assets brought into the relationship

Where one or both partners bring a family business, an investment property, or an inheritance into a second or later relationship, a Binding Financial Agreement can set out in advance what happens to that asset if the relationship later ends. These agreements can be entered into before or during a marriage or de facto relationship, and while each party needs independent legal advice for the agreement to be enforceable, they provide a level of clarity that an informal understanding cannot match, particularly where the two partners bring markedly different levels of pre-existing wealth into the relationship.

Communication and the risk of contested wills

A significant share of estate disputes arise not because a will is unreasonable, but because the people affected by it were caught off guard. Adult children who discover the terms of a will only after a parent’s death, with no earlier sense of the reasoning behind it, are more likely to challenge it, including through a family provision claim under the relevant state legislation. You do not need to disclose exact figures or the full contents of your will, but explaining the reasoning behind your decisions while you are still able to do so materially reduces the likelihood of a dispute later on.

Reviewing arrangements over time

Blended families change. Children grow up, relationships end or begin, and asset values move considerably over a decade or two. An estate plan built around a blended family should be reviewed every few years as a matter of course, and always after a remarriage, separation, or the birth of a child. What it requires is clarity about your own intentions, legal structures that give proper effect to them, and enough communication along the way that nobody involved is left guessing. It is also one of the more common conversations I have with clients, and usually one of the more worthwhile ones.