Inheritances in Property Settlements

How the court will deal with inheritance when making orders in a property settlement depends on the circumstances of the case. When the money was inherited, what the deceased’s intentions were and how the money has been used are all relevant factors in determining whether a sum of money received as inheritance forms part of an asset pool, or is ‘protected’ from distribution in a property settlement.

When the inheritance was received

If an inheritance is received by a partner before the start of the relationship or around the time the relationship formed, it will likely be considered an initial contribution to the relationship by that party. This means that the value of the inheritance will not be separated from the asset pool of the relationship. However, the inheritance will be treated as one of the contributions made by that party and therefore will be taken into account when determining that party’s entitlements. Depending on how large the inheritance was and the size of the party’s other financial contributions to the relationship, the inheritance may have a large or a small adjusting impact on the party’s entitlements at the property settlement.

If an inheritance is received during the course of a relationship, how it is treated will depend on how the money was used by the couple and on the intentions of the benefactor. If the money was spent on improving the family home, paying for the family’s day to day expenses and generally used for the benefit of both parties, it will be treated as a financial contribution to the relationship by the party who received the money.

If an inheritance is received late in a relationship or after separation occurred, it will generally not be viewed as a contribution to the asset pool. In this situation, the inheritance may be ‘protected’ from distribution at settlement.

The intentions of the benefactor

If the deceased can be shown to have had specific intentions for the inheritance, this may influence how the inheritance is treated at settlement. For example, if the benefactor made it clear that the money was for the benefit of the whole family, it would be likely the court would regard it as part of the asset pool. On the other hand, if the money was bequeathed to a party for a particular purpose and if the party kept the money separate from the rest of the couple’s assets, it would likely be treated as separate from the asset pool.

If the beneficiary’s partner assisted with the care of the deceased – for example, if the money came from a parent who lived with the couple, the inheritance would be more likely to be treated as belonging to the whole family.

Size of the asset pool

When a large inheritance is received at a late point in a relationship and the couple’s asset pool is small when the inheritance is excluded, the inheritance may be included in the asset pool if the court is of the view is that a division of the asset pool without it would lead to an unjust settlement. Essentially, this means that where the party who has made the greater contribution to the relationship is not the party who receives the inheritance, the inheritance may be used to provide them with a just settlement.

Going to court for a property settlement

All persons with family law disputes are encouraged to resolve their situation without seeking the intervention of the court. This can be done by negotiating with each other directly, with the assistance of lawyers or by attending Family Dispute Resolution. If a family law dispute cannot be resolved without litigation, a party can file an application for orders in the Federal Circuit and Family COurt (FCFCA). An application must be filed within 12 months of a divorce becoming final. For parties who are separating from de facto relationships, applications must be filed within two years of the date of final separation.

If you require legal advice or assistance with a family law matter please contact Armstrong Legal.