What happens to an inheritance in a family law settlement?

One of the most common questions I am asked when giving advice in family law matters is in circumstances where one spouse has received an inheritance from a parent, friend, or family member: “Is my spouse entitled to take half of my inheritance? 

Does an Inheritance form part of your relationship assets? 

In almost all cases an inheritance will be included in the matrimonial asset pool, but that does not mean that your spouse will automatically receive half of it.

Most parties bemoan the fact that their spouse could benefit from an inheritance made to them by their family, particularly when both of the spouse’s parents are still alive and elderly and the spouse is likely to inherit from his parents in the near future.

However, it is not as straight forward as splitting the inheritance down the middle.   Inheritances tend to be treated differently as part of the asset pool, depending on when and how they were received and the difference that they make to the asset pool at the end of the relationship.

Who received the Inheritance? 

In most cases, the beneficiary of the inheritance is the family member of the deceased.  However, in some cases, the deceased may have left an asset to both parties in their will.  In circumstances where the deceased benefited both spouses equally under his or her will, the divisible pool of assets will include the inheritance as an equal contribution from them both.

If the will leaves benefit of the asset to their immediate family member only, then the contribution will be seen to have come only from that family member.

The proportion of the contribution allocated to the inheritance will depend on many factors, such as how long the relationship was, what was done with the inheritance and the proportion of the inheritance when compared with the asset pool as a whole.

What was your spouse’s relationship to the deceased?

Even if the deceased left the asset to you alone, did your spouse care for the deceased prior to the relationship, or did the deceased have the benefit of living in your jointly owned home?  If the answer is yes, then the Court may allocate a large proportion of the contribution of the inheritance to your spouse, even if he or she did not benefit under the will, as they will be deemed to have contributed to the deceased’s life.

What did you do with the inheritance?

If the inheritance is substantial and applied to the reduction of mortgage or a large debt or it is used to purchase an asset which still has significant value in the asset pool at the end of the relationship, there will likely be a percentage adjustment in favour of the beneficiary, as the Court recognises that without the inheritance, the asset pool would have been much smaller.

However, if the inheritance was spent on day-to-day expenses or on a holiday and the receipt of the inheritance makes little difference to the state of the asset pool at the end of the relationship, then the Court will make little or no adjustment to the contributor.

How long was the relationship and when was the inheritance received

The court very rarely quarantines an inheritance unless it was received many years after separation or divorce (if a property settlement has not taken place) or if the relationship was very short.

The court will also give less weight to the contribution of an inheritance received in a very long relationship, then it would to an inheritance received in a very short relationship, as the other spouse would have had the opportunity to contribute to relationship in many other ways in a long relationship (including non-financial contributions such as childcare).

Inheritances received either before or in the early stages of the relationship will be considered initial financial contributions to the relationship or marriage by the person bringing the asset in.

If you have received an inheritance towards the end of the relationship, but before you have formalised your property settlement, the inheritance will still likely be taken into account in your property settlement.

When it comes to an inheritance received after the divorce has been finalised, it will likely be excluded from the pool of assets divided between both parties. This is because the Court often finds that the opportunity to contribute the inheritance towards the relationship has diminished.

How much difference does the inheritance make to the asset pool

The weight attributed to the contribution of an inheritance would also depend on the proportion of the inheritance when compared with the asset pool as a whole.  

For example, if the $1,000,000 asset pool was made up mostly of a $900,000 inheritance received by one of the parties, the Court will give a much higher weight to that contribution, that it would to $50,000 inheritance applied to a $1,000,000 asset pool, which would not attract a large adjustment.

Above are a few of the factors that the Court may consider when deciding how to handle a party’s inheritance in a divorce settlement. However, it is important to note that every case is different and often consists of many unique factors that may be considered. 

Safeguarding Inheritances 

Although it can be difficult for a spouse to propose entering into a binding financial agreement to protect any assets that they have brought into the relationship or which are inherited, it is often a cost effective and safe way of safeguarding that any inheritances received remain an asset of the beneficiary.

Next steps

If you need advice on your separation entitlements and are concerned about how to best protect your assets, Aberdeen Lawyers can help.

Arrange a ½ hour free legal advice appointment by calling us today on (03) 8390 7007 or by filling in the Contact Us form.

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