If you have received an inheritance either during your relationship or after your separation, you may be wondering how the Family Court will treat that inheritance, namely, will you get to keep it?
The Family Court has a broad discretion when it come to the treatment of inheritances – it may decide to quarantine the inheritance from the rest of the asset pool or include it in the asset pool as property available to be divided between the parties.
One significant consideration will be timing – when did you receive the inheritance?
Pre-separation inheritances
When an inheritance is received before you separate from your partner it will most likely be regarded as a financial contribution to the relationship by you and will typically form part of the asset pool to be divided between you and your ex-partner.
When determining how the marital assets will be divided between the parties, the Family Court will consider several factors. One consideration is the contribution each partner has made to the asset pool. When it comes to your inheritance, the Family Court will consider:
- When you received your inheritance relevant to the length of your relationship;
- What percentage of the total asset pool is made up from your inheritance; and
- What you used the inheritance for.
For example, if you received an inheritance in the first year of your relationship with your now ex-spouse, and the relationship lasted for a further 25 years, the significance of that first-year financial contribution maybe eroded by time. In your 25-year relationship your ex-partner may have contributed other assets to the relationship, taken on the responsibility of homemaking or the financial costs of renovations or supported you for a year whilst you went back to study. These kinds of factors diminish the significance of the contribution of your inheritance and the result may be that you receive less than 100% of the inheritance out of the asset pool.
By contrast if, 3 months before you separate from your partner, you receive an inheritance that comprises 30% of the total marital assets, it is more likely the inheritance will be considered a significant contribution by you, that your partner cannot claim to have contributed to the acquisition of, the conservation of, or improvement of. This makes it harder for your ex-partner to justify why they should receive a portion (if any) of your inheritance.
Post-separation inheritances
You should expect that an inheritance received any time before final orders are made settling your property to be relevant to proceedings and must be disclosed to the other side so it can be considered by the Court as part of the usual process of property division. Generally, it is more vulnerable to division if your partner can in some way claim to have contributed to the acquisition, conservation, or improvement of this inheritance.
Prospective inheritances
What happens if you are likely to receive a big inheritance from a family member even though that family member is not yet dead?
When a party is likely to receive an inheritance after separation then it may or may not be considered as part of the property settlement depending on the circumstances. This is called a Prospective Inheritance.
Generally, an inheritance is not regarded as marital property or a contribution to the marital wealth because it has not yet been received; it is just a potential undetermined sum of money that someone may or may not receive. You have no legal right to an inheritance because at any time the family member can decide to change the gifts in their Will and disinherit you.
A Prospective Inheritance will therefore only be factored into a family law property settlement if a party can show the Prospective Inheritance is sufficiently proximate to the other party to justify an adjustment based on future needs by considering (amongst other factors):
- The size of the inheritance;
- The testamentary capacity of the Will maker;
- The likelihood of the inheritance being received; and
- The time at which the inheritance is likely to be received.
The bar for proving a Prospective Inheritance is ‘sufficiently proximate’ is very high and recent cases suggest it is rare for the Court to factor in a Prospective Inheritance in a family law claim. The following cases give some indication of the Family Court’s approach:
In the 1999 case of De Angelis v De Angelis, the wife in the matter was expected to receive a significance inheritance from her aunt who suffered from dementia and was unlikely to change her Will. The Family Court found it would be unjust and inequitable to the husband if the court did not consider the wife’s anticipated inheritances in determining the property settlement claim.
By contrast, in the 2012 case of MacDowell v Williams, the Family Court found that although the wife had a Prospective Inheritance of over $20 million, there was no reason to suppose that she was likely to receive it in the near future, since her parents who were in their 70s were in good health and still working.
How do I protect my inheritance?
One way is to enter a Binding Financial Agreement with your partner in which you agree that in the event of your separation any inheritances received by either party remain the exclusive asset of that party.
If you are in the process of separating you and your ex-partner may enter consent orders that explicitly state you are both prevented from making a claim against any future inheritances received by either party.
If you would like to discuss any of the matters outlined above, we encourage you to contact one of the experienced members of our team by calling 1300 654 590 or emailing us for an initial no-obligation call.
The information contained in this post is current at the date of editing – 3 August 2023.
