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Inheritances and family law

By October 24, 2019February 23rd, 2024No Comments

If you receive an inheritance after you have divorced or separated from your spouse, shouldn’t it be all yours? While you may feel that keeping your whole inheritance is what your deceased loved one would have wanted, it’s legally permissible for spouses to argue that an inheritance is an asset belonging to both parties and that it should be divided up like other matrimonial assets on separation or divorce. Here we take a brief look at inheritances and family law.

If you receive an inheritance after you have divorced or separated from your spouse, shouldn’t it be all yours? While you may feel that keeping your whole inheritance is what your deceased loved one would have wanted, it’s legally permissible for spouses to argue that an inheritance is an asset that forms part of the matrimonial asset pool, and that it should be divided up like other matrimonial assets on separation or divorce. Here we take a brief look at inheritances and family law.

The confusion comes about because the Family Law Act 1975 does not define “matrimonial property”. Instead, section 79 of the Act gives the family courts the power to make property-related orders “with respect to the property of the parties to the marriage or either of them…” And this includes assets acquired after the parties relationship has ended.

The way that inheritances and family law interact depends on the unique circumstances of each case. However over time, the law has become clearer about the division of assets of a relationship, and it is now accepted that inheritances received during marriage (or during a de facto relationship), and also after separation, will generally be considered property to be included in the matrimonial asset pool. In the past, people often attempted to argue that inheritances ought to be excluded from a matrimonial asset pool, but this approach no longer succeeds.

Still, the way family courts deal with inheritances does depend on other factors, which include:

  • When the inheritance was received (that is, was it before the parties began living together, during a relationship, or after separation?).

Inheritances received late in a relationship, after a short marriage, or after separation are usually handled by making a contributions-based adjustment to the amount of the inheritance each party will receive.

An inheritance received post-separation can still be included as an asset of the relationship similar to any other property owned by a party. Again the question becomes what contribution the other party may have made to that asset.

To alter property interests if an inheritance is received post-separation, the family courts can either take a “global” approach (pooling and dividing all assets), or an “asset by asset” approach (each asset is divided depending on each party’s contribution to that asset). The inheritance may therefore still be included in the asset pool, but the family court may decide a party has not made any contribution to it. In an asset by asset approach, the non-inheriting party is then not entitled to share the inheritance.

  • Whether the party who didn’t receive the inheritance is shown to have made a contribution to it.

In general, courts see inheritances as a contribution by the party receiving it, with the other party not seen as contributing significantly to the inheritance other than in exceptional circumstances. Such circumstances may include, for example, care of the deceased before they passed away, or financial and non-financial contributions to property owned by the deceased.

  • The size of the inheritance in relation to the total asset pool.

The courts then determine what weight to give to the inheritance alongside other assets and contributions.

Inheritances and family law: Quarantining the inheritance

If the party receiving the inheritance didn’t intermingle the inheritance (whether cash or property) with the party’s own property, and if there is enough other property owned by the parties, the family courts can take a “two pools” approach, effectively separating the inheritance from the other property.  This is also known as “quarantining the inheritance” so it is not able to  be divided with other matrimonial assets. However, importantly, the inheritance may still affect the court’s assessment of the inheriting party’s “future needs”.

It’s recommended that if you receive an inheritance, you park it for the time being and obtain legal advice on your options. Your lawyer will be able to determine whether the other party has an actual entitlement to a share of the inheritance, taking into account factors such as if there has been intermingling of finances between the parties and the deceased person which may affect the result.

Inheritances often muddy the waters in second marriages, when a party may wish to protect children from a previous relationship while still looking after the second spouse. The best way to cover yourself in situations like these is to enter into a Binding Financial Agreement with your spouse which can handle how potential inheritances will be treated in the event of separation or divorce.

Inheritances and family law: Future inheritances

Note that when it comes to inheritances and family law, the courts can only take inheritances into account when they have been actually received by a party, or where a party is likely to receive an inheritance in the near future. It does not apply to a purely speculative situation where there is merely the expectation of a possible inheritance, based on a still-living family member’s Will.

If you need advice in relation to inheritances and family law, property settlement, or a Binding Financial Agreement, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Legal Services on (02) 6223 2400.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Legal Services.

You can read the Family Court’s guidance on property settlement here.

The confusion comes about because the Family Law Act 1975 does not define “matrimonial property”. Instead, s79 of the Act gives the family courts the power to make property-related orders “with respect to the property of the parties to the marriage or either of them…” And this includes assets acquired after the parties relationship has ended—such as inheritances or even lottery wins.

The way that inheritances and family law interact depends on the unique circumstances of each case. However over time, the law has become clearer about the division of assets of a relationship, and it is now accepted that inheritances received during marriage (or during a de facto relationship), and also after separation, may be considered property to be included in the matrimonial asset pool. In the past, people often attempted to argue that inheritances ought to be excluded from a matrimonial asset pool, but this approach no longer succeeds.

Still, the way family courts deal with inheritances does depend on other factors, which include:

  • When the inheritance was received (that is, was it before the parties began living together, during a relationship, or after separation?).

Inheritances received late in a relationship, after a short marriage, or after separation are usually handled by making a contributions-based adjustment to the amount of the inheritance each party will receive.

An inheritance received post-separation can still be included as an asset of the relationship similar to any other property owned by a party. Again the question becomes what contribution the other party may have made to that asset.

To alter property interests if an inheritance is received post-separation, the family courts can either take a “global” approach (pooling and dividing all assets), or an “asset by asset” approach (each asset is divided depending on each party’s contribution to that asset). The inheritance may therefore still be included in the asset pool, but the family court may decide a party has not made any contribution to it. In an asset by asset approach, the non-inheriting party is then not entitled to share the inheritance.

  • Whether the party who didn’t receive the inheritance is shown to have made a contribution to it.

In general, courts see inheritances as a contribution by the party receiving it, with the other party not seen as contributing significantly to the inheritance other than in exceptional circumstances. Such circumstances may include, for example, care of the deceased before they passed away, or financial and non-financial contributions to property owned by the deceased.

  • The size of the inheritance in relation to the total asset pool.

The courts then determine what weight to give to the inheritance alongside other assets and contributions.

Inheritances and family law: Quarantining the inheritance

If the party receiving the inheritance didn’t intermingle the inheritance (whether cash or property) with the party’s own property, and if there is enough other property owned by the parties, the family courts have usually taken a “two pools” approach, effectively separating the inheritance from the other property.  This is also known as “quarantining the inheritance” so it is not able to  be divided with other matrimonial assets. However, importantly, the inheritance may still affect the court’s assessment of the inheriting party’s “future needs”.

It’s recommended that if you receive an inheritance, you park it for the time being and obtain legal advice on your options. Your lawyer will be able to determine whether a party has an actual entitlement to a share of the inheritance, taking into account factors such as if there has been intermingling of finances between the parties and the deceased person which may affect the result.

Inheritances often muddy the waters in second marriages, when a party may wish to protect children from a previous relationship while still looking after the second spouse. The best way to cover yourself in situations like these is to enter into a Binding Financial Agreement with your spouse which can handle how potential inheritances will be treated in the event of separation or divorce.

Inheritances and family law: Future inheritances

Note that when it comes to inheritances and family law, the courts can only take inheritances into account when they have been actually received by a party, or where a party is likely to receive an inheritance in the near future. It does not apply to a purely speculative situation where there is merely the expectation of a possible inheritance, based on a still-living family member’s Will.

If you need advice in relation to inheritances and family law, property settlement, or a Binding Financial Agreement, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Legal Services on (02) 6223 2400.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Legal Services.

You can read the Family Court’s guidance on property settlement here.

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