Often parties to a marriage or de facto relationship will receive an inheritance during the course of marriage or relationship, or following separation but prior to the parties completing a property settlement. In many instances the party receiving the inheritance will seek to quarantine the inheritance from the pool of assets subject to the property settlement, this is especially so when the inheritance was received post separation.
How an inheritance is dealt with by the Court in property settlement matters will depend upon the circumstances of the case. When the inheritance was received and how the monies were applied by the parties will all be considered by the Court when determining how to treat an inheritance.
Typically, inheritances received prior to the commencement of the relationship, or at the beginning of the relationship are considered to be an initial contribution by the party receiving the inheritance.
The impact or weight given by the Court to an inheritance received prior to or early in a relationship may be diminished over time. As with other financial contributions, the shorter the relationship, the more weight is given to initial contributions.
For example, an inheritance received at the commencement of a 5-year relationship will be given more weight than an inheritance received at the commencement of a 30-year relationship, as there is typically more time and opportunity for the other party to ‘offset’ the initial contribution.
When an inheritance is received late in the relationship or post separation, the Court has the discretion to exclude it from the main asset pool when assessing contributions, but have regard to it when deciding whether any adjustment is required under section 75(2). However, in light of recent decisions, such as Calvin & McTier  and Holland & Holland  the Court no longer favours an approach whereby the inheritance is excluded from the pool.
Instead the inheritance will be included in the available property pool and the Court has the discretion to adopt a two-pool approach whereby the inheritance is treated ‘separately’ to the balance of the parties’ assets and liabilities. This will usually depend principally upon whether there are sufficient assets in the main asset pool to do justice to the other party, having regard to all the facts of the case.
Therefore, whilst an inheritance may be included in the asset pool, it is still open to the court to conclude that the other party made no contribution to it.
How the inheritance was applied by the parties is also an important factor the Court will consider.
If the inheritance was utilized by the parties for their joint benefit e.g. to purchase a property or discharge a mortgage it will be included as an asset. Even if the inheritance has been dissipated, the inheritance will still be considered as a contribution by the party who received it. This may have the effect of increasing the beneficiary’s percentage entitlement to existing property available for division.
The inheritance may also be treated as an asset if both parties have made contributions towards it, for example both parties caring for the testator or one party carrying out renovations to, or contributing financially towards, an inherited property.
It can be difficult to know how to treat an inheritance in a property settlement and each matter will turn on the unique facts of the case.
The family law team at McLachlan Thorpe Partners lawyers has extensive experience in preparing and providing advice in relation to family law matters. If you wish to discuss your particular circumstances, please contact: