During a marriage or defacto relationship, it is commonplace that one of the parties becomes entitled to receive an inheritance. If the relationship then breaks down, is the other party entitled to some of the inheritance?
An inheritance that is received by a party will be classified as property under the Family Law Act (1975) and is to be taken into consideration when negotiating a property settlement. How it will be considered depends on various factors and unfortunately there is no set formula for how it should be treated.
The Full Court of the Family Court of Australia is clear to say that each case must be dealt with on its own facts and merits.
An inheritance can be classified in one of two ways:
as an asset that can be divided between the separated parties, or
as a financial resource that one party has to the exclusion of the other. For example, an inheritance received as a cash payment may be considered a financial resource of the party that received the cash as they can access that money for their own financial support into the future, placing them in a stronger financial position when compared to the other party who cannot access the cash.
One interesting case that came before the Court is Elgabri & Elgabri where the husband received an inheritance not long before separation. The Judge excluded the inheritance and decided that after excluding the inheritance, both parties had contributed equally to the rest of the assets. The Judge awarded a further 7.5% to the wife though as the husband would have the benefit of the inheritance for his future and the wife did not have access to the same level of financial resources.
A different approach was taken by the Court in Elgin v Elgin. The Judge took the position that an inheritance received about 10 years before separation carried no significant weight. The parties had been married for 40 years and the inheritance represented about 3% of the entire property pool at separation. The Judge took the view that the contributions of both parties had been the same and divided the property equally.
Another case worth mentioning is Sinclair v Sinclair. In this case the wife had received a large inheritance many years before separation. The Judge concluded that the bulk of the assets were unrelated to the direct contributions of either party and on that basis allocated 78.5% of the total assets to the wife.
It is important that each individual situation is assessed on its own facts and merits. Before you start negotiating a property settlement, it is important to make sure you know what you may be entitled to.