An Ex-Partner’s Claim To Your Inheritance

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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.

 

Summary

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.

What happens to your property before, during and after a divorce or separation?

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A main concern for people when they separate is what will happen to the property they have accrued during the relationship.  It’s no wonder then that questions around the division of property are some of the most common we are asked at Daykin Family Law.

We frequently advise on concerns related to the family home and ownership of property in the event of separation, so we’ve pulled together some of key facts you need to know about property before, during and after divorce or separation.

 

How do we go about dividing property and assets?

There are several options available when it comes to the division of assets, but for most separating couples, what happens to the family home can negotiated and agreed as part of property settlement.  There is no set way how this agreement can be reached, and often depends on reaching an outcome that suits both parties and the children, if any.

Simply put, a Property Settlement is the division of assets and liabilities between a separated couple, whether married or de facto. Property Settlement involves the division of the things you and your partner own or have an interest in.  This can include real property, businesses, shares and chattels to name a few.

If you require more information on the process and time constraints in detail, we’ve covered 8 Things You Need to Know About Property Settlement here.

 

Who pays the mortgage after separation?

At a time when budgets are often stretched, this question is a common one.  Firstly, if the mortgage is in both names (‘joint names’) then both parties are legally responsible for paying the mortgage.  If payments are not made, by either or both parties, then the bank can take steps to legally repossess the property, despite any separation or divorce proceedings that are in place.

If, in the event that one party, whether living in the house or not, refuses to make mortgage repayments, there are a number of options to consider:

  1. Contact the lending institution and inform them of the circumstances.  It may be better that they are aware of the reason for defaulted payments and may be able to reach a compromise with you on repayments pending final division of your property through the Family Court or Federal Circuit Court.
  2. If you and your partner can agree to sell the property, this will ensure the mortgage is paid.  Any proceeds following the sale can be held in a trust account until you reach an agreement with your former partner.
  3. In some circumstances, you can obtain a Court Order for spousal maintenance to force your partner to contribute to ongoing mortgage payments.

Whether you keep making mortgage payments depends on a number of circumstances.  For example, continuing to make mortgage payments can enhance your property entitlements if those payments are considered to be post-separation contributions in certain scenarios.  

In other circumstances, it can be advisable to cease making contributions where that person is no longer living at the property and has to rent new premises and lacks the capacity to make such payments.  Ultimately, the decision made surrounding mortgage payments can impact on property settlement . It is strongly advised to seek advice from a family law specialist to decide the best course of action for your individual circumstances.

 

We’ve separated.  Who stays and who goes?

In situations where one spouse is unable to live under the same roof as the other, a ‘holding pattern’ can be agreed that allows one spouse to take rented accommodation and for resources to be made available for this purpose until the property settlement is finalised.  If no agreement can be reached and neither spouse wants to leave, an application can be made to the Court for an order granting sole occupation. In order to do this, it may need to be demonstrated that it isn’t viable for both spouses to live together, and that the funds are available to fund a separate accommodation for the other party.

 

We were in a de facto relationship. Can we still apply to the Court for Property Orders?

Yes, you may be able to.  The Family Law Act 1975 contains certain mirror provisions that apply to both married and de facto couples.  An application for property settlement arising from the breakdown of a de facto relationship can be made in circumstances where:

  • the separated couple have been living together on a genuine domestic basis for two years or more; or
  • there is a child of the relationship; or
  • a party has made substantial contributions of a certain nature and serious injustice would result.

 

Can we begin the property settlement process before we divorce?

Yes, you can commence the process at any time.  A settlement can be a lengthy process, so it can be advisable to begin the property settlement process as soon as it is feasible.  Sometimes, the longer parties wait before dividing the property, the greater the chance that problems may arise, for example one of the parties could be reducing the property pool by wasting, selling or disposing of property.  

It should also be noted that the Court will usually identify and value property that exists at the date of the final hearing, meaning property acquired by the parties after the date of separation can be taken into account.

However, it is important to only begin the process when you can think rationally.  Where there is any hostility, it is advised to seek the assistance of a lawyer.  Separating de facto parties must bring proceedings for Property Settlement and/or maintenance within two years of the date separation and married couples must do so within twelve months of a divorce order taking effect.  

 

We have children.  Will this affect the property settlement process?

Putting aside the legal aspects, if you have children, this can bring an emotive aspect to considerations around property, especially in the short term.  In what is normally a turbulent time, parents should consider whether it is viable, appropriate and financially possible for one parent to remain in the family home with the children in the interim period of separation or divorce.  Some separating couples in this situation prefer the primary carer to stay in the family home to ensure continuity for the children.

While both parties may strive to ensure continued access to the family home for the children, sometimes this may not be feasible.  Many primary caregivers are not the primary income earners and may be concerned about how they might be able to make financial ends meet while maintaining continuity for the children in the family home, or how they will solely take on a mortgage.  

Alternatives such as spousal maintenance may be an option in this scenario, to ensure one party pays for particular outgoings for a period, even if they are not living in the family home. Where there are financial strains from not immediately dividing the property assets, we strongly advise getting legal advice to try and reach the most balanced outcome for both parties.

 

What do I do now?

Separation, divorce and property settlement can be one of the most emotional and financially important decisions of your life so it’s crucial to work with a lawyer with the expertise and experience you need to be able to make informed decisions about your entitlements and which course of action is best for you personally and your children.  

Daykin Family Law offers a discounted initial consultation wherein you can understand your entitlements and obligations.  We can discuss your entitlements and suggest the best course of action to settle the matter quickly and efficiently.

If you believe you can come to an amicable agreement with your partner, it is still important to have that agreement formalised in a binding and enforceable way.  Property Settlement can be a complex area of law; therefore, sound and pragmatic advice is needed to ensure that all issues are fully assessed from the outset and steps are put into place to protect you throughout your whole matter.

Each case is different and depends on the individual situation, so contact us today to start the discussion on how we can help you move your financial separation forward.

 

If you require further information on separation or divorce, check out some of our other articles:

Applying for a Divorce – What Do I Need to Know?

Family Separation & Responsibility

Am I Entitled to Spousal Maintenance?

Separation and divorce in Australia: what’s the difference?

How might separation impact my business?

8 Things You Need to Know About Property Settlement

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Whether you are leaving a marriage or de facto relationship, you may require a Property Settlement or the division of assets upon the breakdown of your relationship. We’ve pulled together a list of our most commonly asked questions to help you navigate this complex area of law.

 

What is Property Settlement?

Generally speaking, Property Settlement is the division of assets and liabilities between a separated couple, whether married or de facto.  Property Settlement involves the division of the property held by both parties.

The Family Law Act 1975 (Cth) sets out the law regarding Property Settlement and, importantly, deals with people on an individual basis.  So, whilst you may have heard stories from friends and family who have been through Property Settlement, it is important to note that those circumstances may not necessarily apply to you and your ex-partner.  Every relationship is different, so it’s crucial to obtain advice about your situation and circumstance from an expert.

What is ‘Property’?

Property is generally classed as all of the assets (things you own).  This could be in joint or separate names, or could be held by someone else on a party’s behalf.  Some examples include;

  • Your family home
  • Holiday home
  • Cars
  • Boats
  • Household effects (anything from the sofas to the cutlery)
  • Personal items such as jewellery and clothing
  • A business
  • Savings and superannuation
  • Shares
  • Debts
  • Credit cards
  • Leases such as Hire Purchase Agreements
  • Family pets

It can also include property you held in your own name prior to the relationship, or property you acquired following separation.

Do separating couples need to have a Property Settlement?

Negotiating a Property Settlement is really important – if you don’t finalise your financial relationship, either party is able to come back and make a claim for property settlement at a later date.  In this case, the Court considers the property at the date of proceedings rather than the date of separation.  This could mean that any debt accrued by the other party is brought into the property pool in some circumstances, despite the debt being accrued after separation.  This can apply to superannuation and savings, assets acquired with another person right through to extreme cases like a lottery win.  Aside from physical property, practical issues such as mortgage payments, personal loans and credit cards also need to be taken into consideration.

Whilst Property Settlement can be the most complicated part of the separation, it is also one of the most important steps to take, as it finalises your financial relationship.  This means that neither party can make any further property settlement claims against the other if the agreement is made binding and enforceable or property settlement Orders are made by the Court.

What are the time constraints for Property Settlement?

Whether you have recently separated from a marriage or de facto relationship, you are able to apply for property settlement now.  You don’t need to wait for a divorce, for example, before having a Property Settlement.  This can occur shortly after separation.

Generally speaking, it may be best to consider property settlement as soon as you can feasibly do so.  However (with a couple of exceptions) separating parties must bring proceedings for Property Settlement within two years of separation for a de facto couple or twelve months of a divorce order taking effect for a married couple.  If a Property Settlement is not reached prior to these time limits, it is possible for the other party to bring an application ‘out of time’ in certain circumstances so you may still be at risk.

I’ve heard that property is usually split 50/50 in a property settlement. Is that true?

Whilst many people think this is the case, there is actually no rule or presumption that dictates the equal division of assets in Australia.  Property Settlement is always at the discretion of the Court who will weigh up many factors in making their decision.   Some of these factors can include;

  • How much money each party contributed
  • Contributions made towards parenting and homemaking
  • The length of the relationship
  • Non-financial contributions
  • The current and future needs of each person

The longer the relationship, the more likely it may be that the Courts may consider both the contributions of the parties are equal, but the reality is that each case is unique and different.

Whether you reach an agreement out of Court, or have to litigate to obtain your entitlement, the law we advise you on when it comes to property settlement is the same.

Broadly, this process involves:

  • Ascertaining the legal and equitable entitlements of both parties (which can include assets in another person’s or entity’s name), known as the “property pool”;
  • Assessing whether or not it is just and equitable to make orders for property settlement and, if it is, assess each party’s financial and non-financial contributions to the property pool and the relationship;
  • Considering other relevant factors which will impact on your entitlement, such as your state of health, discrepancies in respective earning capacities and care of children of the relationship under the age of 18 years; and
  • Considering whether the structure and monetary outcome of the proposed settlement is just and equitable or, in other words, appropriate

What if my ex-partner doesn’t want a Property Settlement?

Sometimes, one party may request the property settlement and the other party does not want to finalise the settlement.  In this case, your family lawyer can contact the other party in writing to progress towards financial separation, or suggest mediation.  If this is refused, a last resort is then to bring an application for property settlement despite their wishes.  The Court will then decide on a just and equitable division of assets and liabilities, as well as superannuation.

How do I start the Property Settlement process?

Whether amicable or not, the best way to finalise the Property Settlement is to commence the process as soon as is practical.  At Daykin Family Law, we normally start the process by advising you of your entitlements, then proceed to draft a letter to send to the other party with your agreement.  Where it is possible, we will try to avoid the necessity of going to Court by coming to an amicable resolution.

In some cases, where there is little likelihood of achieving an amicable result through mediation, we will assist you in commencing Court proceedings.

The Property Settlement process is aimed at negotiating a settlement outside of Court, and as such, most cases do not go to trial.

What should I do next?

If you are considering a Property Settlement, the first thing to do is to understand your rights and obligations.  Daykin Family Law has extensive experience in navigating, resolving and finalising property settlement and financial issues upon the breakdown of a relationship, including acting for third parties whose interests are affected by marriage or de facto relationship breakdowns.

Daykin Family Law offers a discounted initial consultation wherein you can understand your entitlements and obligations.  We will work out your entitlement and suggest the best course of action to settle the matter quickly and efficiently.

If you believe you can come to an amicable agreement with your partner, it is still important to have that agreement formalised in a binding and enforceable way.  Property Settlement can be a complex area of law; therefore, sound and pragmatic advice is needed to ensure that all issues are fully assessed from the outset and steps are put into place to protect you and your interests throughout your whole matter.

Each case is different and depends on the individual situation, so if in doubt, contact us today.

If you require further information on separation or divorce, check out some of our other articles:

Applying for a Divorce – What Do I Need to Know?

Family Separation & Responsibility

Am I Entitled to Spousal Maintenance?

Separation and divorce in Australia: what’s the difference?

How might separation impact my business?

Divorce and Separation

Separation and divorce in Australia: what’s the difference?

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There is a misconception that a divorce will also resolve your property settlement with your ex-partner: It will not. Obtaining a divorce order will not give you finality in your financial relationship with each other.

Divorce in Australia

For divorce in Australia, parties must complete a divorce application and file it with the court.  The court will consider this material at a hearing, the date of which is set down when you file the application (usually 3 or so months after filing).  If a divorce order is granted, this will provide you with a legal separation, however it will not automatically alter your property interests under family law.

To be eligible to apply for a divorce, you must have been separated from your spouse for at least 12 months.  There can be circumstances where parties may have separated but they remain living together under the same roof for a period time or have had short periods of reconciliation and then separated again on a final basis.  You may still be eligible to make a divorce application in these situations.  You should speak to a lawyer to discuss your particular circumstances and confirm your eligibility and the court’s requirements.

Options for finalising a property settlement

Separate to a divorce, a property settlement will provide you with an alteration of property interests (for example, determining who will keep the house, or whether it needs to be sold; who will be responsible for the credit card liabilities; how superannuation will be split between you etc).  The process for finalising a property settlement will depend on whether the parties have agreed or can come to an agreement regarding how their property interests should be divided.

If both parties agree

If a separated couple agrees to alter their property interests and the terms of that property settlement, they can have a legally binding and enforceable agreement by:

  1. Entering into a binding financial agreement; or
  2. Applying to the court for consent orders.

Using either option, or in some cases both options, your lawyer will need to take your detailed instructions in relation to the property that you own (including assets, liabilities, superannuation and financial resources), the contributions made by both parties throughout the relationship and any factors which may impact on the parties moving forward (such as age, health, income disparity, care of children etc). They will assess your entitlement and confirm whether your agreement is in line with what the courts would consider is just and equitable. They will then draft the required documents for you to affect the property settlement. There will be different processes from this point depending on which option you choose: binding financial agreement or consent orders.

If both parties cannot agree

Mediation is a process whereby the parties attend upon a mediator, with or without their solicitors present, to attempt to come to an agreement about the division of their property interests. The mediator should assist the parties to keep the conversation to relevant information and work with you to generate options for terms of settlement which are acceptable for both of you.  If an agreement is reached at mediation, you can approach a lawyer to draft the relevant documents and finalise the property settlement.

Court proceedings are started as a last resort if the parties cannot agree on how to divide their property interests. Proceedings are not usually commenced without attempts to resolve the matter by way of negotiation or alternative dispute resolution as they can be costly and emotionally taxing on all parties involved.

A formalised property settlement will usually be required

It is important to finalise your financial relationship with your ex-partner.  An informal agreement, even if it is in writing, may not be binding and one of the parties may be able to make an application to the court seeking an arrangement that is different to the agreement made between you (provided they apply within the relevant time limit).  Therefore, having your agreement formalised through a binding financial agreement or consent orders is necessary to protect yourself moving forward.  A lawyer can assist you with this and guide you through this process.

Time limitation for property settlement – married couples

There is a 12-month time limitation for a married couple to apply to the court for a property settlement or for spousal maintenance after a divorce order takes effect.  Whilst the court can grant leave to apply outside of this time limit, it can be a difficult and costly process and success is not guaranteed.

In some cases, we recommend that parties enter into substantial negotiations before divorcing which often results in a resolved property settlement before an application for divorce is even made or a divorce order is granted.

What if we weren’t married?

Former de facto couples are substantially afforded the same rights under family law legislation to a property settlement as married couples.  The time limitation is different however for de facto couples, whereby they have 2 years from the date of separation to make an application to the court for property settlement or maintenance.  Like married couples, the court can grant leave to apply outside of this time limit but, again, this can be a difficult process and success is not guaranteed.

Talk to an expert

Contact Daykin Family Law to discuss your options with our Accredited Family Law Specialist & Director, Shannon Daykin.  Let us help you navigate separation, divorce and the property settlement process in a cost effective and efficient manner.