Inheritance Receipts in Post Separation Property Settlements: The Treatment following Calvin & McTier and Holland & Holland

2017 saw a number of important family law developments.  These included the financial agreement case of Thorne v Kennedy, which was reviewed by Szabo & Associates, Solicitors, in “Can Prenuptial Agreements Withstand Pressure?” and the High Court parenting case of Bondelmonte v Bondelmonte.  In addition, recent cases have set the record straight about how inheritances, obtained after a separation, should be treated in a property division even if the inheritance is received some time later.

When couples separate they need to arrange the division of their property.  Sections 79 and 75(2) of the Family Law Act 1975 set out the general principles a Court considers when deciding financial disputes after a marriage or de facto relationship breakdown.  These principles include looking at direct financial contributions by each party such as earnings, indirect financial contributions such as gifts and inheritances, non-financial contributions such as child care and homemaking, and future requirements such as age, health, care of children and ability to earn. There are no set rules when it comes to property division in the Family Court.  Each case is different and will turn on its own particular facts.

But what if an inheritance, possibly after a considerable time, is received after separation?  In Calvin & McTier (2017), the Full Court of the Family Court of Western Australia considered this question and answered in the affirmative i.e. it should be included in the asset pool to be divided.  In contrast, in the New South Wales case of Holland & Holland (2017) the inheritance was not included in the pool, at least not in the first instance.

 Key Issues

An inheritance, received after separation, will be dealt with in one of two ways: it can be included in the pool for consideration when dividing the assets, or considered a financial resource meaning it would be excluded from the pool by the Court but an adjustment may be made in favour of the other party.

In Calvin, the former husband received a large inheritance some four years after separation and three and a half years after the divorce.  As there had been no formal financial settlement the wife was given leave, under s44(3) of the 1975 Act, to pursue a property settlement claim.  The couple had an eight-year relationship with one child who was cared for by them both equally.  The husband had brought more assets to the relationship with contributions assessed as 75/25 percent division in his favour.  A 10% adjustment, however, was made in favour of the wife in respect of s75(2) factors to reflect the difference in their earning capabilities.  The trial judge, who considered the asset pool to include the inheritance (which represented 32% of the total pool) divided the assets 65/35.

The husband appealed on the grounds that the inheritance was received well after separation and there was no connection between the inheritance and the matrimonial relationship.  His argument was unsuccessful, it not being considered a requirement that an inheritance, received post separation, should be treated differently from other property subject to the discretion of the Court.

In Holland, the married couple lived together for 17 years before separating in 2007.  At the time of the property Hearing there were two children aged 17 and 14.

In late 2011, nearly five years after the separation, the husband received a relatively substantial inheritance from his late brother to the value of $715,000.  At the Hearing, the Judge ordered that the inheritance was a financial resource of the husband.  However, on appeal, the wife argued that the inheritance should be included as an asset of the parties.  The appeal was successful and the Full Court of the Family Court decided that the trial judge was incorrect to deem the inheritance as a financial resource of the husband only.

In delivering its judgment the Full Court said: “In our view it is wrong as a matter of principle to refer to any existing legal or equitable interests in property of the parties or either of them as ‘excluded’ or ‘immune’ from consideration in applications for orders pursuant to s79”. In coming to this decision, the Full Court approved Calvin & McTier.

 What does it mean?

In family law disputes it is a common misconception that an inheritance, or other large sum, will be excluded from the property pool to be divided between the parties.  All of the existing legal and equitable property interests need to be identified and evaluated for the purpose of obtaining property orders.

Any property acquired after separation but before resolution or the final property Hearing, will be treated as property of the parties with the Court, in its discretion, determining what is a “just and equitable” division based on all the circumstances.  If a person received a windfall inheritance after separation but before settlement, it is open to them to argue that it should be treated differently but it will not be excluded from the property pool.

The cases outlined arguably suggest a preference to finalise property matters in a timely manner once there is no prospect of reconciliation.  More particularly, if you are the person in the relationship for whom there is the likelihood of receiving a large inheritance then you should seek legal advice and aim to formalise your property settlement as soon as possible.

It is important to obtain legal advice about your particular circumstances before making decisions on dividing your property as there is more than one way the Court will deal with post separation assets.

Contact Szabo & Associates, Solicitors - Expert Family Lawyers in Surry Hills, Sydney

The experienced lawyers at Szabo & Associates, Solicitors can provide you with expert advice on the wide range of family law matters.  For further information on resolving property issues during a divorce or separation, or any other family law matter, contact us on (02) 9281 5088 or fill in our online contact form.