When an inheritance is received, and it benefits both parties to the relationship, often upon separation the spouse who is the intended beneficiary will argue that the financial benefit was only intended for them. In these circumstances they will aim to have the inherited sum excluded from any property settlement.
Whilst it is possible to have an inheritance excluded from your property settlement, there are many of factors that will be taken into consideration before the matter can be decided.
Retaining your inheritance by agreement in a property settlement
The simplest way to retain an inheritance is to reach an agreement with your former spouse for this sum to be excluded for the property settlement. This will undoubtedly require some negotiation and compromise from both parties. Once agreement has been reached, your agreement can be finalised in two ways, either by applying for consent orders through the Court or by entering into a Binding Financial Agreement.
Where property settlement agreement cannot be reached
If you can’t reach agreement with your former spouse and court proceedings are commenced, it will be up to the Court to decide whether the inheritance should be included in the pool of assets available for distribution.
Whether the inheritance comprises part of the relationship assets the Court will likely consider:
When it was received– the time frame between when the inheritance was received, and the date of separation will be crucial in determining whether it should be treated as a relationship asset in your property settlement. Where a long period of time has passed between the inheritance and the separation, the Court is more likely to treat the inheritance as part of the relationship assets.
Whether the deceased had specific intentions– If the deceased expressed specific intentions as to how the beneficiary should use the inheritance, this may persuade the court to exclude the inheritance from the relationship asset pool.
Care of the deceased– Where the spouse of the beneficiary helped to care for the deceased, for example if the deceased lived with them, then it’s more likely that the inheritance will be included in the asset pool available for distribution.
How the inheritance was used- if the inheritance was used for the betterment of the family, i.e. Used to pay bills, pay for a family holiday or renovate the family home, in most cases the Court will consider this to be a contribution to the relationship made by the person who inherited it. In these circumstances the monetary value of the inheritance would not necessarily be returned to them when the marital assets are divided.
Prospective Inheritance in property settlements
If a spouse is likely to receive a prospective inheritance from a parent, this will be taken into consideration when the court is determining the parties’ future needs.
In a situation where a spouse’s parent has made a Will leaving an inheritance to that spouse and that parent no longer has the testamentary capacity to change their Will, the Court has stated that where the spouses parent is leaving a significant estate, it would be “shutting one’s eyes” not to give real consideration to this in the property proceedings, by way of a percentage adjustment.
However, there must be a clear connection between the monetary value of the estate likely to be inherited and the impact this would have on the spouse’s financial situation. It also must be more than likely that the spouse will receive that inheritance.
At Williams Barristers & Solicitors our experienced family lawyers are available to assist you with any questions you may have regarding the treatment of inheritances or property matters in general.
if you have, or anticipate receiving, a significant inheritance it may be helpful to speak with one of our solicitors to discuss entering into an agreement with your spouse or de facto partner to protect how the inheritance will be treated in the event of separation.