You may be familiar with the phrase “what’s mine is yours,” but what about when it comes to your inheritance in a divorce settlement in Australia?
One of the main parts of the divorce process is the division of marital assets. This can often lead to disputes, particularly if it involves a parties’ inheritance.
| What are Marital Assets? In a family law property settlement, the property pool is the total value of the marriage assets – i.e., assets that arise out of the marital relationship. It will include marriage assets that are in either party’s name, in both party’s names and all assets that are under either party’s control. |
In cases where one spouse has received an inheritance from a family member, it is often questioned whether the party who received it has sole rights to that property or whether that former partner should share it.
In this case, the former partner may argue that the inheritance benefited both parties. The exclusion of the inheritance in the divorce settlement would therefore hinder the parties’ fair entitlements. So how exactly is inheritance dealt with in a divorce settlement in Australia?
Consent Orders
Firstly, it is essential to note that the easiest and most peaceful option is for two former partners to agree on the division of inheritance in a divorce settlement. In this case, the parties can apply to the family court for consent orders to make this agreement official.
| What is a Consent Order? A consent order is a legally binding agreement that is negotiated by both parties and approved by the Court. |
It is only after both parties have tried to negotiate and cannot agree that the issue will go to the family court. The Court will then decide how the inheritance in a divorce settlement is divided.
Is Your Inheritance Part Of Your Marital Assets?
Whether or not your inheritance will be treated as part of your marital assets in a divorce settlement is contingent upon several factors which the Court may consider:
Who Received The Inheritance?
One of the most important questions to ask in the division of inheritance in a divorce settlement is ‘Who is the recipient of the inheritance?’ In most cases, only one party is the recipient.
However, the person leaving the inheritance may have written in their will that the property be given to both parties, in which case, it would become a shared asset.
In such circumstances, and so long as the deceased’s instructions are clear, the divisible pool of assets will include the inheritance.
When Was The Inheritance Received?
Inheritances are treated differently in a divorce property settlement depending upon when the inheritance was received.
Before the Relationship: Inheritances received either before or in the early stages of the relationship are likely to be viewed as initial financial contributions to the relationship or marriage. In saying this, it is to be included in the pool of assets divided between the two parties in the event of divorce.
During the Relationship: Where the inheritance was received during the relationship or marriage, the decision is contingent upon how the money was used.
For example, if the money was used to buy or renovate the family home, go on holidays, pay bills, or other household expenses, this would benefit both parties and therefore be treated as a shared asset. Nonetheless, if the Court finds that the monetary contribution was not used for both parties’ benefit, the Court may adopt a different approach.
After the Relationship: If you have received an inheritance towards the end of the relationship, but before you have formalised your property settlement, the inheritance will likely be taken into account in your property settlement.
This does not mean that your former partner will be entitled to the inheritance. Instead, several considerations will be taken into account, and the adjustments made in favour of one party over the other accordingly.
When it comes to an inheritance received after the divorce has been finalised, it will likely be excluded from the pool of assets divided between both parties. This is because the Court often finds that the opportunity to contribute the inheritance towards the relationship has diminished.
The Intentions Of The Deceased
When deciding if the inheritance in a divorce settlement should be shared between both parties, the Family Court will also consider the deceased’s intentions. For example, if the beneficiary intended for the inheritance to benefit the whole family, it is most likely to be part of the joint asset pool.
On the other hand, if the beneficiary intended for the property to only benefit the named beneficiary, it would be excluded from the asset pool as long as that part kept it separate from other joint assets.
Relationship With The Deceased
In deciding what happens to the inheritance in a divorce settlement, the Court will also consider the relationship between the deceased and both parties.
For example, in circumstances where the benefactor lived with or had been cared for by both parties, the inheritance will more than likely be included in the joint asset pool.
Value Of The Inheritance
Additionally, the Court’s decision regarding the inheritance in a divorce settlement is sometimes contingent upon the property’s value.
For instance, if the inheritance received is significantly larger than the asset pool combined, then a just and equitable result from the division of property would not be achieved if the inheritance is excluded. In saying this, in cases where the joint asset pool is much smaller than the inheritance, the Court is likely to include the inheritance in the divorce settlement to ensure a fair outcome for both parties.
Case Study 1: Mistle & Mistle [2010] FamCA 29The relevance of the inheritance value can be seen in Mistle & Mistle [2010] FamCA 29. The matter involved a long marriage of approximately 22 years. Around three and a half years after separation, the husband received an inheritance, valued at $9.5 million at trial. The balance of the property pool was $4.2 million, including $684,000 in superannuation. The wife submitted that the entirety of the husband’s inheritance should be included in the pool, while the husband argued otherwise. While the husband’s inheritance was excluded from the pool, the $4.2M was divided 80/20 in favour of the wife after discussing section 75(2) factors, including the size of the estate to be retained by the husband. |
Case Study 2: Granger & Granger [2018] FCCA 51In this case, the parties separated after a 40-year marriage. Each party had inherited money from one of their parents; the husband inherited $176,750 in 2005, and the wife inherited $700,000 in 2011. The wife’s substantial inheritance came just 18 months before the marriage ended in early 2013. The wife’s inheritance formed a substantial part of the parties’ $1.5 million asset pool. The wife wanted her inheritance excluded from the divisible marital assets. However, the Court found that this would not provide adequate recognition of the husband’s contributions to the marriage. While the husband had lost most of his inheritance in a failed investment, his inheritance was treated as part of the divisible asset pool. In the interest of not undervaluing the husband’s contributions, the Court chose to include the wife’s inheritance in the pool of assets shared between the parties. The Court determined their entitlements as 60 percent to the wife and 40 percent to the husband. |
Above are a few of the factors that the Court may consider when deciding how to handle a party’s inheritance in a divorce settlement. However, it is important to note that every case is different and often consists of many unique factors that may be considered.
Safeguarding Inheritances In A Divorce Settlement
Although prenups and financial safeguards are often unpleasant to think about, it may be something to consider for those who hold concerns about their marriage or relationship and the protection of any future inheritances.
Hire the Best Divorce Lawyers Today
If you seek help with your divorce settlement matter and hold concerns for the protection of your inheritance, it’s time to find a reliable and experienced divorce lawyer.
Here at JB Solicitors, we will make the process as pain-free as possible. We have fixed-free pricing, giving you a clear sense of the costs from the start, and will be sure to help you out every step of the way.
With years of experience under our belt, we pride ourselves on making each client’s Divorce Settlement experience as positive as possible.
Contact JB Solicitors to get started on your Divorce Settlement matter or for assistance with any other legal matter.
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