Inheritances and family law

Will the Court give me back what I put in?

An inheritance is not a protected asset in family law property settlements. Depending when an inheritance is received, the family law courts exercise wide discretion about how it is treated.

Will an inheritance be included in the property pool?

The treatment of inheritances can result in bitter disputes between parties in family law property settlements. An ex-partner who received an inheritance may believe they should retain all of it whilst the other ex-partner may argue that it should from part of their shared pool of property to increase their overall entitlement.

The family law court’s treatment of an inheritance can be confusing. One inheritance can be excluded entirely from the property pool whilst another can be treated as a separate pool distinct from the other property. Whatever approach the courts choose to adopt, they will not ignore an inheritance.

An inheritance will only be considered where it has already been received or where evidence shows that party is likely to receive an inheritance in the very near future e.g. if a parent has lost the capacity to change their Will. The mere expectation of a future inheritance will not affect the division of assets of the relationship. The family law courts will not be interested in a possible inheritance an ex-partner might one day receive without evidence that the entitlement is more than purely speculative.

What will the family law courts consider?

A key issue in property settlement negotiations is how an inheritance received during a relationship is to be treated.

How an inheritance is dealt with in a property settlement depends on the circumstances of the particular case. Following are some of the factors taken into account in determining whether the inheritance forms part of the asset pool, or is ‘protected’ from distribution in the settlement.

  • the timing of the inheritance i.e. before cohabitation commenced, during the de facto relationship/marriage, or after separation
  • the intentions of the deceased;
  • how the money was used; and
  • the size of the inheritance compared to the value of the property pool.

The family courts will consider what weight, if any, should be given to the inheritance and assess it along with the parties’ other contributions.

If an inheritance is received shortly before or after the commencement of the relationship, it will be considered an initial contribution by that party and it’s value will included within the asset pool. The value of the inheritance as one of the contributions made by that party will be taken into account when determining that party’s entitlements on separation. The magnitude of the impact of the inheritance on adjustments to a party’s entitlements depends on it’s size and the amount of the party’s other contributions to the asset pool.

If an inheritance is received during the relationship, how it is treated depends on how it was applied and the intentions of the deceased. If the inheritance is spent on improving the family home, paying for the day to day expenses of the family and generally used for the benefit of both parties, it is likely to be treated as a financial contribution by the party who received it.

If an inheritance is received after separation, it will generally not be viewed as a contribution to the asset pool and may be ‘protected’ from distribution between the parties.

If the deceased had specific intentions for the inheritance, this may influence how it is treated. For example, if they specified that it was for the benefit of the family as a whole, it is more likely to be treated as part of the asset pool. If, however, the deceased specified that the bequest was to a party for a particular use who then kept the inheritance separate from the asset pool, it is likely to be treated as separate from the asset pool.

If the ex-partner of the beneficiary assisted with caring for the deceased (e.g. if a deceased parent lived with the couple) the inheritance is more likely to be treated as belonging to the family as a whole.

Where a large inheritance is received late in a relationship and the test of the asset pool is small and if a division of the balance of the asset pool would result in an unjust settlement considering the parties’ contributions, the inheritance may be treated as part of the asset pool. That is, if the party who has made the greater contribution is not the one who receives the inheritance, it may be included to give that party a just settlement.

Resolution of a property settlement

It is always preferable if possible for parties to family law property negotiations to settle the matter amicably. This can be achieved through direct negotiations, through lawyers, or by undergoing family dispute resolution. If a dispute cannot be resolved amicably, either party can file an application for property orders in the family law courts. An application must be filed within 12 months of a divorce becoming final or for de facto relationships, within two years of the date of final separation.

Call us for free advice on the status of an inheritance in a family law context.

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