Will my inheritance form part of my property settlement?
Can I prevent my spouse from receiving part of my inheritance in our Family Law matter?
Inheritances or bequests are considered property, and do not fall into a protected category of assets that are automatically excluded from distribution between the parties.
The 4 Step process
In a property settlement, there are 4 x steps taken by the Court in determining the division of assets:
- Identifying and valuing the asset and liability pool;
- Identifying and assessing the contributions each party made to the relationship;
- Identifying and assessing future needs;
- Determining a just and equitable division of property.
Inheritances are treated like any other contribution made to a relationship and will be seen as a contribution made by the party who receives the inheritance.
Usually, the non-receiving party has difficulty showing that they contributed to the inheritance in any way, unless they can show that they made specific contributions to the deceased person during their lifetime, by providing care/assistance to them or making contributions to their property (such as performing renovations or maintenance).
When an inheritance is received late in the relationship or post separation, the Court has discretion to exclude it from the main asset pool when assessing contributions, but then take it into account when deciding whether any adjustment is required between the parties for future needs factors (such as earning capacity, health issues, parenting obligations etc.).
Whether the Court will choose this two pool approach and treat the inheritance separately from the other assets of the relationship, will depend on the contributions each party has made, the length of the relationship, and whether there are sufficient assets in the main pool to do justice to both parties if the inheritance was excluded, in all the circumstances of the case.
Bonnici & Bonnici (1992) FLC 92-272
In Bonnici (1992), the Full Court said that if there were no other assets other than the inheritance, and the non-receiving party had made significant financial, home maker and parenting contributions, that it would be incumbent upon a court to make a property settlement in favour of the non-receiving party from the inheritance.
Sinclair & Sinclair  FamCA 388
The parties’ assets in this case were over $7M, most of which was received by the Wife by way of an inheritance years before the parties separated. The Court found that approximately three-quarters of the property pool was made up of the inheritance, as opposed to assets which were the result of the direct contributions of the parties themselves. The Court ultimately assessed the Husband’s contributions to be 12.5% of the pool.
Schirmer & Sharpe (2005) FLC 93-213
In this case, the Court found that up until separation the parties’ contributions had been equal. The Wife received an inheritance after separation which was included in the pool available for distribution between the parties. The Court determined that the contributions including the inheritance were 90% to the Wife and 10% to the Husband, however the Court made a further adjustment of 2.5% in favour of the Husband when dividing the assets.
Expectation of an Inheritance
Where a party has an expectation of receiving an inheritance, often the other party tries to argue that the expectation of such an inheritance is relevant and should be considered with determining the division of property between them.
The possibility that a person may receive an inheritance at some point in the future is usually irrelevant where the testator is still alive and has testamentary capacity, as they may amend or change their Will.
In cases where a testator has lost testamentary capacity, and is unable to change their Will, there may however be a higher probability that the party will inherit (perhaps shortly) under the terms of the Will that is in place. In circumstances such as this, it is possible that a Court may consider the likelihood of the party receiving a future inheritance, but this is not necessarily guaranteed as every case turns on its own individual facts.
White & Tulloch v White (1995) FLC 92-640
In this case the Court stated that where a testator has a significant estate, has made a Will favourable to a party, no longer has the testamentary capacity to change the Will, and there is evidence of their likely or impending death, then consideration of the expected inheritance may be relevant.
However, based on the circumstances of this case, being that the Wife’s Mother was 81, widowed and in reasonably good health, the Full Court rejected the proposition that a prospective inheritance was a financial resource of the Wife. The Court did however confirm that this is not an absolute rule and each case must be determined on its own circumstances.
If you have any queries in relation to how your inheritance may be treated in your Family Law property settlement, please do not hesitate to contact our team.
If you require assistance in relation to your Family Law matter please contact:
Vicki Kelly, Accredited Family Law Specialist, firstname.lastname@example.org
Disclaimer: This article is intended to provide general information only, and is not to be regarded as legal advice. Formal legal advice should be sought in relation to particular transactions or circumstances.