What happens to my inheritance if I divorce?
Dividing property and assets during a divorce or separation can be a complex and emotional process.
Even when both parties agree that a separation is the best way forward, dividing assets and property can still be a challenge. The situation becomes even more complicated when inheritance is involved.
Questions like “are your required to share your inheritance with your ex?” arise and the answer is not always a straightforward yes or no.
The way inheritance is treated during a property settlement is dependent on various factors, and every case is unique. In this article, we will delve into the details of how inheritance and divorce intersect in the property settlement process, exploring the factors that influence the outcome, and offering suggestions on how to protect your inheritance.
What is an inheritance?
The transfer of assets from a deceased individual to a living person is referred to as an inheritance. The deceased, known as the benefactor, can pass on a diverse range of assets to the beneficiary.
Inheritances are most often seen between family members, such as a parent or grandparent leaving their money, property, investments, or a home to a child, grandchild, or another relative.
However, it’s possible to receive an inheritance from someone who is not a family member.
Will you get to keep your inheritance if you get divorced or separate?
Inheritance is not considered a protected asset during a separation or divorce and may be considered as part of the marital property that needs to be divided. Whether you are able to keep your inheritance or if it will be split depends on various factors.
If you and your former partner agree on how the inheritance should be handled, such as you receiving it in full, this agreement can be formalized through a Consent Order for Property or a Binding Financial Agreement. Consent Orders are used to finalize agreements between parties during a separation, while Binding Financial Agreements can be made at any point in a relationship and used as protection in case the relationship ends.
If you and your former partner can come to a mutually acceptable agreement about the inheritance, it may require negotiation and compromise regarding other property and assets. The consequences of these compromises will depend on your specific situation and must be carefully considered.
If you and your former partner cannot reach an agreement about the inheritance, a court will have to make a decision on how the inheritance and other assets should be divided.
How does a court treat inheritance?
The Family Court will consider the inheritance to either be included as part of the property and asset pool or it will be quarantined and kept separate from this pool.
There are many factors that can influence how the court will treat the inheritance in the property settlement matter, some of which include:
- The timing of the inheritance. Was it received before or early in the relationship, during the relationship, or after the separation?
- Whether inheritance assets became communal or whether they were quarantined and kept separate.
- How the inheritance has been used. Though there may have been one beneficiary, the inheritance may have been used to buy property or a house for the family, to pay bills, go on a holiday.
- The size of the inheritance. This is usually compared to the size of the party’s assets.
- What the intentions or wishes of the benefactor. Did the benefactor provide detailed instructions regarding how the assets were to be used.
While all of these factors are important, when the inheritance was received is arguably the most influential of them.
Why does it matter when the inheritance was received?
The timing of when an inheritance was received is important because the division of assets and property is somewhat dependent on the contribution of each party to the relationship.
If an inheritance is received either before the relationship begun or very early into the relationship, it may be treated as an initial contribution to the relationship or marriage.
An initial contribution is any contribution (both financial or non-financial) that has been made by either party at the start of a relationship. The impact of these initial contributions will be unique in each relationship, however, if the inheritance was substantial and managed to contribute to long term gains for the couple, it could result in the beneficiary of the initial inheritance receiving a greater share when the property pool is divided.
It is not uncommon for an inheritance that was received early in a relationship that lasted for a long time, to not have too much of an impact on the overall property settlement of the beneficiary, as the contributions of the other party to the relationship may have reduced the impact of the inheritance.
If an inheritance is received during a relationship or marriage, the way it is treated in the property and divorce settlement will be contingent upon how the money or assets have been used. If it had been used in a way that benefits both parties to the relationship, such as to pay for a holiday, buy a home, renovate the family home, or pay for other household expenses, then it is likely that the inheritance will be treated as a shared asset.
If it can be clearly shown that the inheritance was not used to benefit both spouses, then the court may take a different approach and treat it differently.
When an inheritance is received towards the end of a relationship or even after you’ve separated but the property settlement has not been finalised, the inheritance could be taken into account in your final property settlement. This doesn’t necessarily mean that your spouse will be entitled to your inheritance, rather it means that it may be taken into consideration when dividing assets and property, and adjustments may be made that take the inheritance amount into consideration.
If you receive an inheritance after you’ve separated, does this need to be disclosed?
If you’re involved in a property settlement that is yet to be finalised but you’ve separated from your spouse, you still need to disclose the inheritance as part of your assets.
The value of the asset pool is based on the date of the court proceedings not the value of the asset pool at the date of separation, so all assets that are held by the parties to the relationship must be known.
This allows the courts to be able to make decisions regarding property settlements in a just and equitable manner.
How is a property settlement decided by the courts?
When it comes to dividing assets, including inheritance, if you and your former spouse are unable to come to an agreement, even after family dispute resolution attempts, then the way in which your assets are divided will be decided by the courts.
There is no exact sum or formula for how the courts will decide to split your assets, instead every case is treated differently with their unique circumstances taken into consideration. Some factors that may also be taken into consideration include:
- Direct and indirect financial contributions made by each party to the relationship.
- Responsibilities and duties of each party, such as childcare and homemaking.
- The ongoing and future financial needs of each party, which can be impacted by age, health and ability to work.
A decision of how the property and assets are to be divided will be made by a judicial officer once all evidence has been heard. Their decision will be based on what is considered to be just and equitable in your unique circumstances.
Can you protect an inheritance that you received during your relationship?
To protect an inheritance you receive during a relationship, you could get a binding financial agreement created. This agreement could allow you to quarantine the inheritance and keep it separate from the rest of the assets you bring into the relationship.
The agreement can stipulate how the inheritance will be treated in the event of the relationship ending.
To create a legally binding financial agreement, you must have the consent of your partner, as well as have received independent legal advice from a lawyer. It’s best to engage with a family lawyer when considering making a binding financial agreement because there are certain clauses and information that must be included to make the agreement enforceable and legally binding.
It is important to note that while binding financial agreements are generally enforceable and considered legally binding if they have been drafted to meet all legislative requirements, they are not 100% watertight and may be challenged. You reduce the chances of your agreement being overturned by working with a highly experienced property settlement lawyer.
How can a lawyer help you with inheritance and property settlement matters?
A family lawyer who specialises in property settlements can help you understand your legal rights and requirements when it comes to inheritance matters.
Whether you’ve received an inheritance during your relationship and you want to protect it or you’ve recently separated and received an inheritance, the best course of action is to seek legal advice.
While no one can tell you exactly how a property settlement matter will be decided in a court, an experienced property settlement family lawyer can provide you with information regarding the most likely outcomes for your unique circumstances.
Choose SMR for inheritance and divorce property settlement matters
If you need an easy to work with and highly engaged family lawyer to help you in an inheritance matter, then we can help you.
Discuss your situation with a family law specialist during a free consultation today. Call us on 07 4931 1888.