Generational transfer of wealth
The first baby boomers began retiring in 2006 and now there are 120,000 people retiring annually in Australia and rising. Baby boomers represent approximately 25%of the Australian population, and 55% of total wealth.
Today, there are more 65-year-olds than 1-year olds! We have entered the greatest transfer of wealth in the history of our country.
Over $3.9 trillion will be transferred over the next 20 years, primarily from baby boomers to Generation X & Y family members. That estimate is rising by 7% p.a.
So what will this mean for divorcees?
There are many potential considerations of this pending generational transfer or wealth for divorcees.
- What if a living parent or grandparent had recently given an early inheritance or gift of money to a family member and they are now going through a divorce?
- What if a living parent or grandparent was planning to give an early inheritance or gift of money to a family member and they are now going through a divorce? How might this impact the plans for giving money to the divorcee but perhaps also other people such as siblings who were going to get money also?
- What if a parent or grandparent passes away and the person who inherits the money then soon goes through a divorce or is already in the middle of a divorce?
- What if a divorce is settled but in future that person receives an inheritance or gift, what avenues do their ex-spouse have to try and claim on those funds?
These, and other potential events are very important to be mindful of, both in terms of the legal advice and considerations, but also in terms of the structuring and financial advice.
It is important at any time over history, but especially now because there is such a high likelihood of it now occurring due to the stats mentioned above. It creates a need to have even greater awareness and planning.
The scale of potential money involved is mind blowing. $3.9 TRILLION!! That sheer amount of money adds an additional element to the importance of it.
A consideration like this is a great example of where family lawyers and our financial planning or accounting team should be working closely together on advising a client.
Making sure that actual or potential events like this are considered from all relevant angles to ensure the client gets the best possible outcome both now and into the future.
This is a huge event that is already occurring and coming down the line.
In addition to making sure the client achieves the best possible outcome in terms of maximising their financial position in regard to how much of the inheritance or gift they receive or keep during the divorce settlement, it is also the stage after that which is very important.
Having worked with many people over the years who have inherited or been gifted large amounts of money (whether they were divorced or not), we generally find it is actually quite a stressful and confusing time for people. Sounds stupid right? Someone inherits or receives a large financial gift and they are stressed or confused? But that is often the case, they may not be expecting it, they may not be used to handling that level of money, or they simply just don’t know the best thing to do with it.
So it is at that time where the right advice is critical also. Making sure the money is well managed to achieve great financial and lifestyle outcomes that align to the clients’ wishes.
As this generational wealth transfer continues over the coming decades, employing effective strategies to help clients maximise their outcomes will be a very important area that we can all contribute to.
We hope you found this article helpful and valuable.
The Family Law Financial Team