Property Settlement

Inheritance and Property Settlement During Divorce

The question often arises as to how the inheritance should be dealt with in a property settlement during a divorce. Inheritance in property settlement during a divorce generally fall into one of three categories:

  1. Inheritances received during the relationship;
  2. Inheritances received late in the relationship or following separation;
  3. Anticipated or prospective inheritance – where a party to a relationship is likely to receive an inheritance in the future. Divorce, Family Law

Each case is different, and the extent to which an actual inheritance or a prospective/anticipated inheritance will impact on a property settlement will depend on the individual case. The Court has broad discretion on how to deal with issues in family law, but the question remains as to what weight will be given to the contributions of the parties. Some factors which are taken into account include:

  • When was the inheritance received (e.g. whether it was received early on in a lengthy relationship vs right before separation in a short relationship);
  • The value of the inheritance (in comparison to the size of the parties’ asset pool before the inheritance was received).
  • Relationship with the person leaving the inheritance (“the testator”) – even though one spouse may have been left an inheritance, the other spouse may also have had an important relationship with the testator and contributed in a way to the inheritance. (e.g. carrying out maintenance and improvements to the inherited property, doing odd jobs for the testator, allowing the testator to live rent-free with the parties, accompanying and/or taking the testator to appointments, etc.)
  • Whether the assets received by way of inheritance by one spouse became communal and co-mingled with a joint asset or whether the inheritance was quarantined by one party.
  • What is actually done with the inherited asset or funds (e.g. whether they were used to improve the financial circumstances of the family);

You might also be interested in reading about What is a Binding Financial Agreement and when can it be challenged?

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An inheritance received during the relationship 

If an inheritance has already been received, this amount will be included in the asset pool available for the division, as no item of the property falls into a special protected category simply because it is an inheritance or the proceeds of an inheritance. The inheritance is taken to be a contribution made by the party who received it, and what weight the Court gives it will depend on all the other contributions made by the parties across the entirety of the relationship.

An inheritance received late in the relationship or following a divorce 

All assets, liabilities, superannuation interests and financial resources in each party’s sole name or jointly with another, or that each party has an interest in, at the time of reaching an agreement or trial must be considered in a property settlement. This includes assets, liabilities, superannuation and financial resources accumulated by either of the parties’ late in the relationship or post-separation.

Accordingly, an inheritance received later in the relationship or following separation/divorce, will be factored into your property settlement matters with your former spouse. The inheritance may be included in the asset pool available for division, or it may be considered a financial resource of the party who received it depending on the circumstances. If it is included in the asset pool, then it becomes a question of what contribution the other party may have made to that asset.

If your property settlement has been finalised, then your former spouse will have no claim to an inheritance you receive post-separation under family law. This is one of the reasons why it is essential to finalise your property settlement matters by way of the necessary legally binding paperwork as soon as possible after you separate.

Anticipated/ prospective inheritance to be received in the future  

Generally, if a party to a relationship is to receive an inheritance in the future and the person providing the inheritance is alive and still has the testamentary capacity, it is unlikely the inheritance will be considered in the property settlement. This is because that person can change their Will at any time before their death, and there is no guarantee that a party will ever receive the inheritance.

However, in circumstances where:

  1. the testator has lost testamentary capacity, meaning that the testator cannot change their Will legally;
  2. there is a high probability that the testator will pass away very soon; and
  3. the party will receive the inheritance by the terms of the Will;

then it is likely that the inheritance will be considered in your property settlement matters either as an asset forming a part of the asset pool available for division or as a financial resource. An anticipated inheritance may be considered a future financial resource, particularly in circumstances where the inheritance is not likely to be received in the near future, but again it must be more than a mere possibility that the party will receive the inheritance; it needs to be shown that the party has an expectancy of receiving the inheritance.

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