Upon the breakdown of a marriage or de facto relationship, the couple will inevitably need to divide their assets and liabilities (such as the family home and mortgage) by entering into a family law property settlement. The assets and liabilities available for distribution, referred to as the "matrimonial property", include all property in each party's respective name, or in which either party has an interest, including houses, cars, cash, superannuation and even inheritances.
Inheritance is usually bequeathed to one spouse, and in some cases, can be substantial. So, what happens to an inheritance in a property settlement? As with most areas of family law, the answer is not always simple.
First, it should be noted that an inheritance always forms part of the matrimonial property available for distribution. It does not matter whether the inheritance was received early or late in the relationship. The ultimate question becomes how much of the matrimonial property, which includes the inheritance, should each party receive.
A number of factors will determine the proper treatment of an inheritance, including, but not limited to:
- The contributions of each party to the matrimonial property;
- When the inheritance was received;
- The length of the relationship;
- The size of the inheritance in the context of the other matrimonial property;
- How the inheritance was utilised;
- The parties' respective future needs; and
- To a lesser extent, the intentions of the benefactor.
How has each party contributed to the asset pool?
In any property settlement, whether or not it concerns an inheritance, the contributions of each party to the matrimonial property will be a paramount consideration.
The court is obligated by the legislation to consider direct and indirect financial and non-financial contributions to the matrimonial property. Additionally, the court must consider contributions to the welfare of the family, such as parenting and homemaking. If it is determined one party made more contributions than the other, that person will be entitled (if considering contributions in isolation) to a greater percentage share of the matrimonial property.
An inheritance falls within the category of a direct financial contribution and is usually considered a contribution in favour of the person who received it. If the inheritance is significant (and all other things being equal), that spouse will be seen to have made a more significant contribution to the matrimonial property, and will receive a greater percentage share of the property. In other scenarios, an inheritance might simply match the significant contributions made by the other spouse, such that the court would consider both parties as having contributed equally to the matrimonial property.
When was the inheritance received?
The timing of the inheritance will impact upon the weight attributed to it by the court when assessing contributions. If an inheritance was received before the relationship started, or at the very beginning, then it will be treated as an initial financial contribution by that party.
Usually, initial contributions are attributed less weight by the court in lengthy relationships. The exception to this is if the inheritance remains untouched and is clearly distinguishable from the other matrimonial property. Such a scenario is rare, but would include, for instance, an inherited share portfolio, the value of which rose and fell with nothing but market forces, and reinvested dividends. In such a case, the non-beneficiary would have a difficult time arguing they made any type of contribution towards it throughout the entire relationship.
It is incontrovertible that even inheritances received post-separation, but before a property settlement, form part of the matrimonial property available for distribution. Generally, inheritances received closer to separation will be given greater weight in terms of that party's contribution to the matrimonial property. As always, a lot depends upon the facts of the case as to precisely how much weight will be attributed to the inheritance, but a person who receives an inheritance late in the relationship or post-separation would be much more likely to strongly argue that he or she made 100% of the contribution to that asset.
What were the benefactor’s intentions?
The benefactor's intentions play only a minor role in family law matters. Say, for instance, the husband to a marriage receives 100% of the estate of his late father. However, the evidence of the case clearly demonstrates, one way or another, the inheritance was left with the clear intention of it benefiting both the husband and wife. Perhaps it is clear the husband would not have received 100% of the estate, or any at all, but for the fact that he was married to the wife (who perhaps had a very strong and loving relationship with her father-in-law). In those circumstances, the court may be inclined to find both parties made a contribution towards its receipt.
Otherwise, the deceased's wish for his or her estate, which is now the property of a party to family law proceedings, to somehow be exempt from the court's jurisdiction is not something entertained by the court, or the relevant legislation.
What are the future needs of each party?
Another step in any property settlement, whether or not it involves an inheritance, is to consider the "future needs" of the parties. The legislation lists numerous factors which the court must assess, insofar as they are relevant, in coming to a "just and equitable" outcome.
The purpose of this step is to make a percentage adjustment in favour of either party to correct for an inequity which would otherwise result. The court will compare the parties' income and income capacity; their financial resources, health and numerous other factors, and how those factors were affected by the relationship. The court will also consider who will have the primary care of the children going forward.
While this step requires the court to make adjustments to ensure a just and equitable outcome in the circumstances of the case, it does not mean the court is required to put the parties in positions of financial equality. The nature of the adjustment made will depend on the facts of each case.
The court may consider making an adjustment in favour of a party based on dollar-figures. Otherwise, and more commonly, the court will make a percentage adjustment to that party's entitlement to the matrimonial property which includes the inheritance.
Questions about an inheritance?
At Taylor & Scott Lawyers we’re here to help. We can guide you through the entire settlement process or simply answer your questions. Whether you’re looking to protect an inheritance or ensure your valuable contributions are honoured, our family law team are on your side.
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