Inheritance After Separation Australia: How Inheritances Affect Property Settlement

A common misconception in family law is that an inheritance received after separation is automatically protected from a former spouse. However, inheritance after separation in Australia can still be relevant in family law proceedings, even if received years after the relationship ends.

Did you know that approximately $3.5 trillion will be inherited by Australians over the next 20 years? As significant wealth transfers across generations, many individuals will also face relationship breakdowns and the need to resolve property settlements.

Understanding how inheritances are treated by the courts can help you better understand your rights, obligations and options following separation.

What is an inheritance?

In New South Wales, an inheritance is the transfer of a person’s property, debts, rights and obligations upon their death to another person or persons.

For most people, an inheritance involves receiving money, property or personal possessions from a deceased estate. While inheritances are often viewed as personal assets, they can still become relevant during a property settlement following the breakdown of a marriage or de facto relationship.

Is a husband, wife or partner entitled to an inheritance?

Whether a husband, wife or partner is entitled to benefit from an inheritance depends on the individual circumstances of the case.

If you receive an inheritance before your property settlement is finalised, it will generally be taken into account by the Court and may form part of the overall property pool. However, this does not mean your former spouse will automatically receive half of the inheritance.

When determining a property settlement, the court is required to consider the parties’ overall financial circumstances to ensure any outcome is just and equitable. This includes assessing the financial contributions made by each party, including any inheritance received during or after the relationship.

In some cases, the court will also consider whether the other party contributed, either directly or indirectly, to the circumstances surrounding the inheritance. Relevant considerations may include:

• When the inheritance was received during the relationship.
• The intentions of the deceased person.
• The size of the inheritance.
• How the inheritance was used or applied.
• Whether the other party provided care or assistance to the deceased.

How the Family Court considers inheritances

When dealing with an inheritance in a property settlement, the Family Court examines the inheritance as a financial contribution made to the property interests of the parties.

There are several approaches the court may take.

Global approach

Under the global approach, all property owned by either or both parties is pooled together, regardless of whether assets are held jointly or individually.

The court then assesses the overall contributions made by each party to the property pool and considers whether any adjustments should be made for future needs under the Family Law Act.

Where an inheritance forms part of the pool, the person who received the inheritance will generally receive recognition for that contribution. However, this does not necessarily mean they will receive the inheritance back in full, in addition to their share of the property settlement. The size of the inheritance and the deceased’s intentions may also be relevant considerations.

Asset-by-asset approach

Alternatively, the court may adopt an asset-by-asset approach.

Under this approach, specific assets are examined individually. The Court then assesses the parties’ respective contributions to each asset. Property is then divided according to those contributions.

Hybrid approach

The court may also use a combination of both methods.

In some cases, a global approach is applied while certain assets, such as an inheritance received after separation, are treated separately from the broader property pool.

If the court determines that an inheritance should be retained by one party as a separate asset, it must still consider whether an adjustment should be made in favour of the party who does not receive the benefit of that inheritance.

Inheritance received after separation

There is a common belief that an inheritance received after separation cannot be considered in a property settlement. However, this is not necessarily correct.

The courts are required to consider all aspects of the parties’ financial circumstances when making property orders.

In the 2017 case of Calvin v McTier, the appeals division of the Court confirmed that all property held by either party can potentially be the subject of property orders, regardless of when particular assets were acquired.

In that matter, the husband received an inheritance four years after the separation. The trial judge included the inheritance in the property pool, and the Court dismissed the husband’s appeal. The court confirmed that judges retain discretion to determine how property acquired after separation should be treated based on the individual circumstances of each case.

Future inheritance in divorce settlements

Another common question is whether future inheritance can be taken into account during divorce settlements.

Generally, future inheritances are not considered during a property settlement because they are uncertain.

Property settlements focus on the assets, liabilities and financial resources that exist at the time of the proceedings. Since future inheritances may never be received, they will not usually influence the outcome.

However, there is no absolute rule.

If an inheritance has already been received during proceedings, or if it becomes a near certainty, it may become relevant.

The decision in Tulloch v White

The leading case concerning future inheritances is Tulloch v White.

In that matter, the husband argued that his former wife expected to receive an inheritance from her elderly mother’s estate. The mother’s will left half of her estate to the wife, and the husband argued that this expectation should be taken into account.

The Court rejected the argument.

The Court noted that there was no guarantee the wife would ultimately receive the inheritance. Circumstances could change due to medical expenses, gifts, donations or other economic factors. The Court concluded that an expected inheritance is often too speculative to affect a property settlement.

Importantly, the Court stated that there is no absolute rule and that each matter depends on its particular facts.

The decision in De Angelis & De Angelis

A different outcome occurred in De Angelis & De Angelis.

In this case, the husband sought consideration of the wife’s expected inheritance from her mother’s estate. Evidence showed that the husband had performed substantial improvement and maintenance work on properties owned by the wife’s mother without payment.

The Court found it would be unjust to ignore the likely inheritance, particularly because the husband’s contributions had improved the value of the properties that the wife would likely inherit.

This case demonstrates that future inheritances may become relevant where there is a worthwhile connection between the expected inheritance and the issues before the court.

Financial resources and future financial circumstances

While future inheritances are generally excluded from property settlement considerations, the Court may consider them where they are sufficiently certain and connected to the parties’ future financial circumstances.

The Court also has the power to adjourn family law proceedings where there is likely to be a significant change in the financial circumstances of one or both parties.

As a result, the treatment of future inheritances will always depend on the facts of the individual case.

Get trusted family law advice

If you have received an inheritance, expect to receive one in the future or believe your former spouse may have inherited assets, it is important to seek legal advice to understand how those circumstances may affect your property settlement.

At Turnbull Hill Lawyers, our experienced family lawyers provide practical advice and strong representation in matters involving inheritances, property settlement disputes and family law proceedings. We can help you understand your rights, assess your entitlements and develop a strategy tailored to your individual circumstances.

Contact Turnbull Hill Lawyers today for advice and guidance about how an inheritance may impact your property settlement.