Sometimes when parties separate, one of the partners receives an inheritance in the period after separation, but before the finalisation of a property settlement. The question then becomes: should the inheritance received during this period form a part of the property settlement? Often people assume that the asset pool for a property settlement will not include post-separation inheritances. However, this is not necessarily the case. Two recent cases found that post-separation inheritances were to be included in the asset pools for property settlement. These two cases were based on slightly different reasoning.
Calvin & McTier
The first of these cases was the 2017 Family Court decision of Calvin & McTier. In this case, the husband inherited $430,686 post-separation, but prior to property settlement. The wife asserted that this inheritance should be included in the asset pool for the property settlement. However, the husband argued that it should not be included. The trial judge made orders that divided all of the property between the parties and included the inheritance. The husband then appealed this decision. The Full Court of the Family Court found that the trial judge had not erred in including the inheritance in the asset pool as, under the Family Law Act 1975, the Family Court has the power to exercise its discretion to include post-separation inheritances in the asset pool. The Full Court also found that a post-separation inheritance is not an asset that is automatically excluded from the asset pool for a property settlement.
Holland & Holland
The question of whether post-separation inheritances should be included in the asset pool for a property settlement was also considered in the 2017 Family Court matter of Holland & Holland. It was found in this case that the post-separation inheritance should form a part of the property settlement.
In this case, a property was inherited by the husband after the separation. The property was worth $715,000. The pool of assets that was to be considered for the property settlement was $370,000 excluding the property. At first instance, the court decided that the post-separation inheritance should be excluded from the asset pool due to its being inherited after separation. Instead, it was found to be a financial resource. However, this decision was overturned on appeal.
The Full Court of the Family Court found that it was wrong to consider any existing legal or equitable interests in property as “excluded” from or “immune” from the asset pool to be considered for a property settlement.
Global approach or asset by asset approach to post-separation inheritances?
Even though the inherited property may be included in the asset pool relevant to the property settlement, it does not necessarily mean that both parties will be entitled to a share in that inheritance. In determining what property each party to the property settlement should be entitled to, the court can take two different approaches.
The first is a global approach where all of the assets are considered together and divided in accordance with the principles contained in sections 75 and 79 of the Act.
The alternative approach is to consider each asset individually and the contributions of each party to each individual asset. If a court adopts this second approach, although the asset is included in the asset pool for the property settlement, the court may conclude that one party has no entitlement to it because they made no contribution to it.
There may be confusion in relation to the extent to which contributions had been made by one party to an inherited asset in circumstances such as the following:
- One party has done work on a property during the course of a relationship which was later inherited by the other party after the couple had separated;
- Where the parents from whom property is inherited mixed finances with the separated couple while they were still alive.
According to the Family Court’s reasoning in Holland & Holland, it is not just post-separation inheritances that may form part of the asset pool for a property settlement. Other assets that are acquired post-separation may also form a part of this pool. Other examples of assets that may be acquired post-separation include a win on a lottery, a redundancy package, interest on post-separation savings or gains on shareholdings.
Because it can be unclear as to whether an ex-partner has an entitlement to a share in a post-separation inheritance or an asset acquired after separation, it is important to seek legal advice. It is also advisable if you seek to protect yourself from having to share an inheritance with an ex-partner, that if separated, you seek a property settlement at the earliest opportunity.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.