Key Takeaways
- If you separate or get divorced, your inheritance could be considered a marital asset and may be split during the division of assets.
- You and your former partner can agree privately about how your inheritance is handled if you split up and this agreement can be formalised.
- The court may treat an inheritance as part of the property pool or separate to it and this may depend on factors like when the inheritance was received, how the inheritance has been used and the size of the inheritance.
- A family lawyer who specialises in divorce and property settlement matters can help you manage your inheritance.
Inheritance after separation
When a relationship ends and a couple separates or gets divorced, one of the most difficult aspects that needs to be resolved is the division of property and assets of the relationship.
Property settlements can be difficult to resolve due to the emotional and upsetting nature of the breakdown of a relationship. Even when both parties can agree that a separation is the best move forward for them, it can still be a challenging time.
The division of your property and assets can be made even more contentious when inheritance is involved. Should the inheritance be shared between the parties?
Unfortunately, this is not a simple yes or no answer. The way an inheritance may be treated when a couple separates is dependent on a variety of factors and every case is different.
In this article, we’re going to discuss how inheritance and divorce works in the property settlement process, what factors can impact how it is treated, and what you can do to protect your inheritance.
What is an inheritance?
An inheritance is essentially the transferring of assets to a person upon the death of an individual. The deceased is known as the benefactor, and they can transfer a wide variety of assets to a beneficiary.
Most commonly, inheritances happen between family members, where a parent or grandparent, may leave money, a home, investments, and property to a child, grand child or another family member.
While inheritances are usually between family members, a person who is not a family member of yours may leave you an inheritance.
Will you get to keep your inheritance if you get divorced or separate?
Inheritance is unfortunately not a protected asset and can be considered a marital asset and part of the overall property pool that needs to be divided upon separation or divorce. Whether you get to keep your inheritance or if it will be divided is dependent on your circumstances and a number of factors (which we will discuss shortly).
If you and your former partner can come to an agreement regarding how the inheritance is to be treated, such as that you will receive the full inheritance, then this can be formalised in a Consent order for property or with a Binding Financial Agreement.
Consent orders are made to finalise agreements between parties when they separate, whereas a Binding Financial Agreement is one that can be made at any point in a relationship and be used as a safeguard in the event of the relationship ending.
If you and your former partner can come to an amicable agreement about the inheritance, it might require negotiation and compromise about other property and assets. However, the impact of these compromises will be unique to your circumstances and need to be weighed up by you.
If you and your former partner are unable to come to an agreement about how the inheritance is to be treated, then a court will need to intervene and determine how the inheritance, along with other assets and property, is to be treated.
How does a court treat inheritance?
The Family Court will consider the inheritance to either be included as part of the property and asset pool or it will be quarantined and kept separate from this pool.
There are many factors that can influence how the court will treat the inheritance in the property settlement matter, some of which include:
- The timing of the inheritance. Was it received before or early in the relationship, during the relationship, or after the separation?
- Whether inheritance assets became communal or whether they were quarantined and kept separate.
- How the inheritance has been used. Though there may have been one beneficiary, the inheritance may have been used to buy property or a house for the family, to pay bills, go on a holiday.
- The size of the inheritance. This is usually compared to the size of the party’s assets.
- What the intentions or wishes of the benefactor. Did the benefactor provide detailed instructions regarding how the assets were to be used.
While all of these factors are important, when the inheritance was received is arguably the most influential of them.
Why does it matter when the inheritance was received?
The timing of when an inheritance was received is important because the division of assets and property is somewhat dependent on the contribution of each party to the relationship.
If an inheritance is received either before the relationship begun or very early into the relationship, it may be treated as an initial contribution to the relationship or marriage.
An initial contribution is any contribution (both financial or non-financial) that has been made by either party at the start of a relationship. The impact of these initial contributions will be unique in each relationship, however, if the inheritance was substantial and managed to contribute to long term gains for the couple, it could result in the beneficiary of the initial inheritance receiving a greater share when the property pool is divided.
It is not uncommon for an inheritance that was received early in a relationship that lasted for a long time, to not have too much of an impact on the overall property settlement of the beneficiary, as the contributions of the other party to the relationship may have reduced the impact of the inheritance.
If an inheritance is received during a relationship or marriage, the way it is treated in the property and divorce settlement will be contingent upon how the money or assets have been used. If it had been used in a way that benefits both parties to the relationship, such as to pay for a holiday, buy a home, renovate the family home, or pay for other household expenses, then it is likely that the inheritance will be treated as a shared asset.
If it can be clearly shown that the inheritance was not used to benefit both spouses, then the court may take a different approach and treat it differently.
When an inheritance is received towards the end of a relationship or even after you’ve separated but the property settlement has not been finalised, the inheritance could be taken into account in your final property settlement. This doesn’t necessarily mean that your spouse will be entitled to your inheritance, rather it means that it may be taken into consideration when dividing assets and property, and adjustments may be made that take the inheritance amount into consideration.
If you receive an inheritance after you’ve separated, does this need to be disclosed?
If you’re involved in a property settlement that is yet to be finalised but you’ve separated from your spouse, you still need to disclose the inheritance as part of your assets.
The value of the asset pool is based on the date of the court proceedings not the value of the asset pool at the date of separation, so all assets that are held by the parties to the relationship must be known.
This allows the courts to be able to make decisions regarding property settlements in a just and equitable manner.
How is a property settlement decided by the courts?
When it comes to dividing assets, including inheritance, if you and your former spouse are unable to come to an agreement, even after family dispute resolution attempts, then the way in which your assets are divided will be decided by the courts.
There is no exact sum or formula for how the courts will decide to split your assets, instead every case is treated differently with their unique circumstances taken into consideration. Some factors that may also be taken into consideration include:
- Direct and indirect financial contributions made by each party to the relationship.
- Responsibilities and duties of each party, such as childcare and homemaking.
- The ongoing and future financial needs of each party, which can be impacted by age, health and ability to work.
A decision of how the property and assets are to be divided will be made by a judicial officer once all evidence has been heard. Their decision will be based on what is considered to be just and equitable in your unique circumstances.
Can you protect an inheritance that you received during your relationship?
To protect an inheritance you receive during a relationship, you could get a binding financial agreement created. This agreement could allow you to quarantine the inheritance and keep it separate from the rest of the assets you bring into the relationship.
The agreement can stipulate how the inheritance will be treated in the event of the relationship ending.
To create a legally binding financial agreement, you must have the consent of your partner, as well as have received independent legal advice from a lawyer. It’s best to engage with a family lawyer when considering making a binding financial agreement because there are certain clauses and information that must be included to make the agreement enforceable and legally binding.
It is important to note that while binding financial agreements are generally enforceable and considered legally binding if they have been drafted to meet all legislative requirements, they are not 100% watertight and may be challenged. You reduce the chances of your agreement being overturned by working with a highly experienced property settlement lawyer.
How can a lawyer help you with inheritance and property settlement matters?
A family lawyer who specialises in property settlements can help you understand your legal rights and requirements when it comes to inheritance matters.
Whether you’ve received an inheritance during your relationship and you want to protect it or you’ve recently separated and received an inheritance, the best course of action is to seek legal advice.
While no one can tell you exactly how a property settlement matter will be decided in a court, an experienced property settlement family lawyer can provide you with information regarding the most likely outcomes for your unique circumstances.
Choose Unified Lawyers for inheritance and divorce property settlement matters in Australia
If you need an easy to work with and highly engaged family lawyer to help you in an inheritance matter, then we can help you.
Our experienced team are well versed in all kinds of property settlement, separation, inheritance and divorce matters, including those that involve inheritance disputes.
Discuss your situation with a family law specialist during a free consultation today. Call us on 1300 667 461.
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