Is Your Inheritance at Risk in a Property Settlement Dispute?

After the separation of a married or de-facto couple, a property settlement is an arrangement to divide their net assets between them. If the Family Court is required to determine the parties’ entitlements, it does so in a stepped process, including assessing the contributions, both financial and non-financial, of the parties to the relationship, the future needs of each party and whether the proposed division is ‘just and equitable’.

In family law proceedings, inheritances that a party to the relationship has received (or possibly likely to receive) will be an important consideration, particularly where it is significant. 

Is an inheritance part of the shared asset pool or dealt with separately?

The receipt of an inheritance will be a consideration in determining a property settlement, particularly where it is significant relative to the overall asset pool of the couple. Generally speaking, receiving an inheritance by a party during the relationship is considered a financial contribution to forming their shared asset pool.

Inheritances can, however, also be a point of contention, particularly where they were received after separation. Understandably the recipient may consider the inheritance to be something personal that a deceased relative may have left them. However, the other party might see it as part of the combined assets of the relationship, which they are entitled to share.

In practice, the treatment of an inheritance can be confusing because sometimes it will be included in the property pool, and sometimes it will form a separate pool. Either way, the Court will include it in their deliberations. 

What does the Court take into account in its deliberations over an inheritance? 

The approach taken by the Court to the treatment of inheritances depends on several factors:

(i) Timing of the inheritance. If the inheritance was received at the beginning of a long relationship, the contribution would probably be deemed to have become absorbed into the pool. It is likely to be excluded if received very late in the relationship or after separation unless there are unusual circumstances. 

(ii) Size of the inheritance relative to the value of the asset pool. An inheritance may be of such a size that it simply could not be ignored as a contribution. On the other hand, a small inheritance may have a minimal impact and be insignificant.

(iii) Other forms of contribution. The spouse that did not receive the inheritance may nevertheless have contributed towards its receipt, such as, for example, acting as a carer to the donor.

How would an ‘expected’ inheritance be treated in a property settlement?

Normally, an ‘expected’ inheritance will not be considered in the deliberations over property settlement contributions. That said, there have been cases where an anticipated inheritance has been recognised for the purpose of asset division. The Court will consider when the inheritance will happen, how certain is it, for example, where a parent is gravely ill and has lost the capability to change their Will, and does the asset pool have adequate assets? In this latter case, the Court may need to take the expected consideration in order to ensure a reasonable outcome.

Case Study: Roverati & Roverati (2021) FamCAFC 89

This recent case provides an insight into how the Family Court might treat an inheritance. 

The parties were married for 33 years, and both received inheritances during that time. They had two adult children. The asset pool was assessed at $1.57m, including the matrimonial home, an investment property and other investments.

In the wife’s case, her inheritance was valued at $50000. The husband’s inheritance was valued at $400000 when it was received. The husband received an income from this inheritance which was partly re-invested and partly used to cover household expenditure.

Neither the husband nor wife sought any adjustment for their future needs, so the issue was solely about the contributions. The wife sought 55% of the non-superannuation assets and 50% of the superannuation. The husband wanted 60% of the non-superannuation assets but accepted the equal division of the superannuation.

In the first instance, the judge assessed the contributions of each party as being equal. This was challenged by the husband arguing that there had been insufficient weight given to his inheritance, the benefit of it to the household finances and thus the overall value of his contribution to the marriage. On appeal, the Court allowed this argument. As well as the disparity in quantum, the way the inheritances of the husband and wife were applied was not equitable. The Court re-assessed the relative contributions to the marriage as 55%/45% in favour of the husband.

When both parties receive inheritances, it does not mean that they will automatically be treated equally despite the length of a relationship.

What does this mean?

Inheritance in a family law dispute is not a ‘protected category’ and is not shielded from a family law property settlement.

There is no one rule for dealing with inheritance, and the Family Court has considerable discretion as to how it will treat an inheritance. Ultimately, the treatment of an inheritance or anticipated inheritance will be dealt with on its merits on a case by case basis.

The treatment of an inheritance can be a complex matter. Sometimes it may be appropriate for the Court to include an inheritance in the asset pool or take a ‘two pool’ approach. Many factors will be considered in this assessment, including the timing of the receipt, the value of the inheritance, and how the inheritance was applied. 

You must seek specialist advice as soon as possible to consider the best approach to be taken, based on the circumstances, before finalising your property settlement.

Contact our Property Settlement Lawyers in Sydney NSW

Szabo & Associates Solicitors [LINK] can provide you with expert advice on all aspects of family law. Please contact us on 02 9281 5088 or fill in the online contact form.