Did you know that $3.5 trillion will be inherited by Australians over the next 20 years? Many Australians who inherit assets will also undergo a relationship breakdown and property division.
Contrary to popular belief, inheritances, even ones received post-separation, may still factor into property settlement proceedings. They will not be protected from your property settlement. Understanding when your former partner is and isn’t entitled to an inheritance can help you make better decisions and understand what options the law has to deal with this issue.
What is an inheritance?
In New South Wales, inheritance is the process of transferring an individual’s property, debts, rights, and obligations upon their death to another person or persons. If you have received an inheritance, this commonly means you have been gifted property, money, or personal possessions from a person following their death.
Is a husband entitled to his wife’s inheritance or vice versa?
In family law, the entitlement of a husband, wife or partner to any inheritance you receive depends on various factors. If you receive an inheritance and have not yet completed your property settlement, then, unfortunately, your inheritance will not be a protected asset and will not be quarantined from your property pool. However, this does not automatically mean that your spouse will receive half of your inheritance.
The courts are required to consider all parts of your financial circumstances when making property orders to ensure the result received is just and equitable. The court is also required to consider the financial contribution made directly or indirectly to the parties’ assets, which includes when one party receives an inheritance.
However, even if another party receives an inheritance, then the other party may still have made an indirect or direct contribution to that inheritance. Many facts are important here, including when the inheritance was received during the relationship, the intentions of the deceased, the size of the inheritance, how the inheritance was applied or even whether the other party provided any care and assistance to the deceased person.
What does the Family Court consider when determining whether you are entitled to a former spouse’s inheritance?
The court examines an inheritance as a financial contribution made to the property interests by the parties. The court can take a few different approaches when examining contributions to property interests made by the parties.
The court can take what is called a ‘global’ approach. This is where all property owned by the parties to a relationship, either solely or jointly, is pooled together.
The court will then determine the overall contribution made by either party to property within the pool and make any adjustments as required by Family Law Act (i.e. for a party’s future needs). In this circumstance, the person who received the inheritance will usually receive credit for their inheritance, but that does not mean they will necessarily receive their inheritance back in full on top of their property settlement entitlement.
As already raised, the size of the inheritance and the intention of the deceased in gifting the inheritance is also important when examining the contributions of the parties.
Asset by asset approach
Alternatively, the court may take an ‘asset by asset’ approach. This is where they will consider the parties’ contributions to specific items of property. The court then divides the assets between the parties based on their respective contributions to those specific assets.
The court can also choose to use a mix of both methods, where the global approach is applied, but certain assets are examined separately from the global pool in an asset-by-asset approach. This might be appropriate when someone has received an inheritance post-separation.
If a court decides to treat an inheritance as a separate asset to be retained by one party, the court also examines whether an adjustment should be made in favour of the party not receiving a benefit from the inheritance.
Ultimately, it is up to the court to decide if an inheritance is included in the property pool and how it is treated based on the individual circumstances of the case.
How does the possibility of a future inheritance affect a property settlement?
The possibility of a future inheritance is not usually considered in a property settlement. Property settlements deal with the assets, financial resources, and liabilities that parties to a relationship have at the time of the proceedings. Future inheritances are uncertain, and this means they do not typically influence the outcome of a property settlement. However, if an inheritance is received or becomes a near certainty during proceedings, it may then be considered.
If you have received an inheritance or if your former spouse has received an inheritance we can help. You should remember the following:
The inheritance once received is likely to form part of the property pool in some form.
The contribution each of you has made to the inheritance will be examined.
The court has the discretion to approach the issue in several ways.
You should seek legal advice if you or your former spouse has received an inheritance.
At Turnbull Hill Lawyers, we have a team of trusted Family Law experts who can provide you with advice and representation concerning inheritances and their impact on property settlement. Contact us today.