Inheritances and Property Settlements
If you receive an inheritance before, during or after a relationship, an obvious question is:
“Do I have to share it with my former partner?”
There is no simple yes or no answer.
An inheritance is not automatically protected from a property settlement. Equally, receiving an inheritance does not mean your former partner is entitled to half of it.
What matters is the broader picture, including:
· when you received the inheritance;
· how much it was worth compared with the other assets;
· what happened to it after you received it;
· the length of the relationship; and
· the financial, non-financial and parenting contributions made by both parties.
How does an inheritance fit into a property settlement?
An inheritance is considered as part of the ordinary property settlement process.
Broadly, the Court will:
1. identify and value the parties’ property, liabilities and financial resources;
2. assess the parties’ contributions, usually expressed as a percentage;
3. consider whether there should be any adjustment for the parties’ current and future circumstances; and
4. determine whether the overall result is just and equitable.
An inheritance can be relevant at several stages.
Sometimes the Court adopts a global approach, considering the inheritance together with the other property.
In other cases, the Court may use a two-pool approach, assessing the inheritance separately from the property accumulated through the relationship.
There is no automatic rule. The appropriate approach depends on the circumstances.
What if I received the inheritance during the relationship?
An inheritance received before or during a relationship will ordinarily be recognised as a financial contribution by the person who received it.
That does not necessarily mean you simply receive the inheritance back dollar-for-dollar before the remaining assets are divided.
Instead, the Court considers the inheritance alongside all the other contributions made during the relationship.
The size and timing of the inheritance are particularly important.
A $1 million inheritance received during a five-year relationship is likely to be viewed very differently from a $10,000 inheritance received early in a 20-year relationship.
The length of the relationship does not simply cause an inheritance to disappear. But over a long relationship there may be many years of other financial, non-financial, homemaking and parenting contributions to weigh alongside it.
Elgin & Elgin [2015] FamCAFC 155 is a useful example.
The parties had been married for almost 50 years and had accumulated substantial wealth. The wife had contributed an inheritance of about $1.3 million. The trial judge nevertheless assessed the parties’ contributions as equal.
The point is not that a substantial inheritance becomes irrelevant in a long marriage.
It is that the inheritance must be considered in the context of the parties’ contributions as a whole.
What if I inherit after separation?
This is where people often talk about an inheritance being “excluded” or “quarantined”.
Those expressions can be misleading.
Separation does not freeze the property available for consideration. If you receive an inheritance after separation but before your property settlement is finalised, it is still property you own and must be considered.
That does not mean your former partner necessarily receives a share of it.
A post-separation inheritance may be treated as a separate pool, particularly where the other party made no contribution to it.
In Holland & Holland [2017] FamCAFC 166, the husband inherited an unencumbered property about three and a half years after separation.
The Full Court made clear that the property could not simply be excluded from consideration or treated merely as a financial resource. It was property owned by the husband.
The real question was what weight should be given to it in the overall property settlement.
That distinction is important.
A Court may conclude that you should retain the whole of a post-separation inheritance because your former partner made no contribution to it.
But the fact that you retain it can still affect the division of the other assets.
Can keeping an inheritance affect the other pool?
Yes.
Suppose you inherit a mortgage-free apartment worth $1 million after separation. You and your former partner also have $1.5 million in other assets.
The Court may conclude that you should retain the apartment.
But you would then leave the relationship with a valuable mortgage-free property in addition to whatever you receive from the other pool.
That can become relevant when the Court considers the parties’ current and future circumstances, particularly any disparity in their asset position.
The result may be that your former partner receives a greater percentage of the other pool.
That does not necessarily mean the inheritance itself has been divided.
It means the Court has considered the financial position each person will be left in and whether a future-needs adjustment is appropriate.
What if there are very few other assets?
Sometimes there are simply not enough other assets to achieve a fair outcome without affecting the inheritance itself.
That principle can be traced back to Bonnici & Bonnici [1991] FamCA 86.
The Full Court made clear that an inheritance is not placed into some special protected category merely because it came from an estate.
If one party has carried most of the financial or parenting burden during the relationship and the only substantial property available is an inheritance received by the other party, the Court can make orders affecting that inheritance.
The Court also recognised that the position may be different where the other party has themselves made a material contribution connected with the inheritance — for example, by caring for the deceased or undertaking substantial work on their property.
Conversely, where there are ample other assets from which a just and equitable settlement can be achieved, a recently received inheritance may effectively remain with the person who received it.
This is one reason the size of the overall asset pool matters so much.
Does keeping an inheritance separate protect it?
Not automatically.
Keeping inherited money in a separate bank account can be useful because it makes it easier to show:
· how much you received;
· when you received it; and
· what happened to the money afterwards.
But there is no special rule that protects an inheritance merely because it remained in a separate account.
Similarly, using inherited funds to reduce the mortgage on the family home does not mean the inheritance ceases to be relevant as a contribution.
It simply changes the form in which that contribution is represented.
Good records are therefore important.
Estate accounts, bank statements and documents showing how inherited funds were invested or applied can make a significant difference where the contribution needs to be reconstructed years later.
What if I am expecting an inheritance?
An expected inheritance is different.
If a parent or other relative is still alive, being named in their will does not ordinarily give you a present legal entitlement to their property.
They may change their will. They may spend the money. Their assets may reduce. They may require significant funds for their own care.
For that reason, an expected inheritance will usually carry much less weight than one already received.
There are, however, unusual cases where an inheritance is sufficiently close or certain to be relevant.
In Moritzen & Moritzen [2018] FamCAFC 198, the wife’s mother was 99 years old and in poor health, and the wife expected to receive an inheritance of about $850,000.
The Court considered the expected inheritance sufficiently proximate to be relevant to the wife’s future financial circumstances.
Importantly, the Court did not simply add $850,000 to the asset pool and divide it.
The inheritance was considered more generally as part of her future financial position.
So, will I have to share my inheritance?
There is no formula.
As a broad guide:
1. An inheritance received during the relationship will ordinarily be recognised as a financial contribution by the person who received it.
2. A recent or post-separation inheritance may be treated separately from the other property, particularly where the other party did not contribute to it.
3. Even if you retain the inheritance, it may affect the division of the other pool because it changes your overall financial position.
4. An inheritance you merely expect to receive will usually have much less significance unless receipt is sufficiently close or certain.
Two people can receive inheritances of the same value and have very different outcomes.
The timing of the inheritance, the size of the overall property pool, the way the inheritance was used and the history of the relationship all matter.
The practical question is not simply:
“Who received the inheritance?”
It is:
“How should the inheritance be treated within the overall
