It is quite common that one of the party’s to a marriage or de facto relationship receives an inheritance during the course of the relationship. But conflicts can often arise when the relationship comes to an end and the process of property settlement begins. This conflict is exacerbated when the recipient of the inheritance becomes concerned with the prospect of the ex-partner claiming or retaining the inheritance.
An inheritance can be classified as property under the Family Law Act 1975 and for the purpose of asset division, it is dealt with under property settlement.
Property settlement with an inheritance in the mix can be confusing to separating or divorcing couples. The recipient party might believe that the inheritance is intended solely for their benefit and should not be treated as part of the divisible asset pool to be shared with the ex-partner.
The other party on the other hand, might be of the opinion that the inheritance was given for the benefit of both partners or for family use, or due to other reasons, and therefore should form a part of the divisible asset pool at the end of the relationship.
Can my ex-partner claim part of my inheritance?
An ex-partner might be able to claim part of an inheritance at the breakdown of the relationship, whether it arises from a marriage or de facto relationship.
The easiest and most practical way to protect an inheritance after separation is by reaching an agreement on how assets including the inheritance would be divided.
The agreement reached can be formalised by applying to the court for a consent order or by entering into a binding financial agreement with lawyers.
Where a separated couple has made attempts to negotiate an agreement and could not finalize on one, they can approach the court to decide if the inheritance would form part of the property pool available for distribution, or would be left solely for the benefit of the beneficiary.
If a recipient party of an inheritance took steps to protect what they received, such as by keeping it separate from the pool of family assets, the court may be in some cases treat the inheritance as separate from the property pool available for distribution.
There is no formula for how the court treats the division of assets including inheritance during property settlement. The court will consider what is just and equitable and evaluate the facts and merits of each individual situation. However, the court may consider the following factors to make the decision:
The time the inheritance was received
The court may consider whether the inheritance was received before the relationship began, during the de facto relationship/marriage, or after separation.
Where the inheritance was received before the relationship began, early in the relationship or before commencement of cohabitation, the court may more likely consider it as an initial contribution of the recipient party to the relationship and the inheritance may not be separated from the property pool available for distribution.
The treatment of an inheritance received during the relationship will depend on how the inheritance was used and sometimes the intentions of the benefactor can be relevant.
Where the inheritance is monetary, for example, if the money is spent on paying family expenses or used for the benefit of both parties generally, it may be treated as a financial contribution by the recipient party and more likely to be added to the ”property pool”.
This means that the longer the period between when the inheritance was received and the time of separation, the more likely the courts may be to treat it as part of the pool of assets to be divided.
Usually when an inheritance is received after separation, there is a diminished opportunity for intermingling it with the divisible asset pool. The court can either adopt a “two pools” approach, effectively separating the inheritance from the rest of the property pool, or treat the inheritance as part of the property pool. In the latter case, when an inheritance is received after separation, a higher percentage contribution may be awarded to the recipient party.
Contributions made by the ex-partner to the inheritance
The court may consider if the ex-partner made contributions to the inheritance. Contributions from a former partner can effectively leave the inheritance unsheltered and open to be treated as part of the divisible asset pool. For example, if the inheritance is an old cottage that needs a new roof, if the ex-partner fixes the roof, the cottage may no longer be considered an inheritance solely for the benefit of the recipient party and may be added to the divisible asset pool, and certain findings may be made about contributions of both parties to the inheritance instead of just one party.
The court may also consider the intention of the benefactor on how the inheritance should be used.
If the intention of the benefactor shows clearly that the inheritance is meant for the whole family, the inheritance may be added to the property pool to be divided as part of property settlement.
The size of the inheritance
The size or value of an inheritance can affect whether the inheritance is included in the asset pool or not.
The court may consider the size of the inheritance and compare it to the value of the joint asset pool. Where the joint asset pool is substantially smaller than the inheritance, the courts may include the inheritance to ensure a just and equitable property settlement for both parties.
The court may also consider the contribution of the ex-partner and weigh it against the size of the divisible asset pool. If the divisible asset pool shrinks significantly when the inheritance is excluded and the court believes the exclusion will not allow for a just and equitable division, the inheritance may in that case be treated as a part of the property pool for division.
Relationship of the ex-partner with the Benefactor/Testator
There are situations where the court will consider the relationship between the benefactor and the ex-partner.
The former partner might have had a good relationship with the benefactor. For example, the benefactor might have lived with the partners, and the ex-partner might have assisted in taking care of the benefactor when ill for example.
While taking note of the intentions of the benefactor in the will, the court may also put the ex-partner’s relationship with the benefactor into consideration and add the inheritance to the pool of assets to be divided.
To sum it all up, in a separation or divorce, an ex-partner might be able to claim that the inheritance of the other party forms part of the property pool available for distribution as part of property settlement. This depends on a number of factors as mentioned above.
To avoid a costly legal battle after separation, couples in an in-tact relationship can consider entering into a binding agreement detailing how their property (including an inheritance) will be treated in the event that the relationship ends. Learn more about these agreements here.
Every case is different. We recommend that you contact us to discuss your specific situation and how best to approach inheritances and your property settlement.
Daykin Family Law can guide you through the process of property settlement. Contact us today for an overview of your options and how we can help you reach a positive solution.
We give you expert legal advice on the most appropriate and cost-effective course of action for you and your family. Contact us on (07) 3852 5490 to make an appointment for a fixed fee initial consultation today.
The blog published by Daykin Family Law is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog publisher. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult Daykin Family Law on any legal queries concerning a specific situation.