When a relationship breaks down, it is common for disputes to arise over the ‘ownership’ of an inheritance received by one of the parties.
The biggest question is whether an inheritance received by one party forms part of the pool of assets for distribution between both.
This article provides guidance on when an inheritance might be available for distribution between the parties, the affect the inheritance will have on proportioning the property settlement, and the circumstances when an inheritance may be protected.
How is a property settlement determined?
When assessing the impact of an inheritance, it is helpful to understand the process used to reach a property settlement in family law matters. This includes:
Step 1 – Identifying all assets, liabilities and financial resources of the parties – assets include those held jointly between the parties, jointly with another party, or separately.
Step 2 – Identifying the financial and non-financial contributions made by each party – financial contributions include earnings and assets brought into the relationship (lump sums, property or an inheritance) and non-financial contributions include caring for family, renovating a home, carrying out domestic duties and managing finances.
Step 3 – Assessing additional factors such as each parties’ future needs – their respective earning capacities, state of health, physical and mental capacity and the needs of primary carers to provide a suitable home for children.
Step 4 – In all the circumstances, determining a settlement that is ‘just and equitable’.
A common myth is that the starting point is generally an equal distribution of assets – this is not correct. The Court’s powers are discretionary and the Court’s aim is to ensure any final property settlement orders are ‘just and equitable’.
How is an inheritance treated in family law proceedings?
The way in which an inheritance is treated in a property settlement depends upon:
- when the inheritance is received;
- the length of the relationship;
- the amount of the inheritance compared to the overall asset pool; and
- the unique circumstances of the parties.
An inheritance whether received before or during the relationship or after separation must be considered by the Court. An acquired late during a relationship may or may not be treated in the same manner as other property.
The inheritance is considered a financial contribution by the person receiving it, who may be found to have made a greater contribution to the overall assets. This depends however on when the inheritance was received, its value, what it was used for, and the other parties’ financial contributions.
For example, the significance of an inheritance can diminish over the course of a long marriage or relationship. For instance, after a 20 to 30 year marriage less weight could be given to an inheritance received early or in the middle of a long relationship as it is offset by other contributions which were made during the entire relationship.
Conclusion
Inheritances whether received before or, during, or after a relationship must be considered part of the parties’ pool of assets when dividing property post-separation. The proportioning of the value of the inheritance is influenced by various matters.
Each case is determined on its merits and the Court’s power is discretionary in achieving a ‘just and equitable’ settlement that takes account of all relevant factors.
If you would like to know how an inheritance affects your property settlement, or if you or someone you know wants more information or needs help or advice, please contact us on 08 9221 5775 or email enquiries@klimekwijay.com .