Niccolò Machiavelli once famously remarked, ‘A son can bear with equanimity the loss of his father, but the loss of his inheritance may drive him to despair.’
The treatment of inheritances often results in bitter disputes between warring parties in family law property settlements. This is perfectly understandable; the party who received the inheritance will no doubt believe they should retain all of it in accordance with the wishes of the deceased. Alternatively, the other party may argue that the inheritance is an asset of both parties and they should be entitled to share in any benefit.
It is interesting to note, for family law purposes, an inheritance will only be taken into account in circumstances where it has actually been received by one party or where it is likely a party will receive an inheritance in the very near future. The mere expectation of a future benefit is unlikely to have an impact on the division of assets of the relationship.
Parties will often approach their lawyer demanding to see a copy of the Will of their former partner’s remaining parent or grandparent claiming the former partner is going to receive significant funds from the estate. It makes little difference to the property settlement whether the family member is worth millions or very little – the Family Law Courts will not be interested in a possible inheritance the former partner might one day receive without evidence to show the entitlement is more than purely speculative.
Consider circumstances where you and your former spouse are involved in property settlement negotiations and one of the key issues is how you are going to treat an inheritance received during your marriage. What should you do?
The family law approach to the treatment of inheritances varies depending on the following factors
- the timing of the inheritance i.e. before the commencement of cohabitation, during the de facto relationship/marriage, or after separation;
- whether the party who did not receive the inheritance could be said to have made a contribution to it; and
- the size of the inheritance compared to the value of the overall asset pool.
In light of those factors, the court will consider what weight should be given to the inheritance and assess it along with the other contributions made by each of the parties. Previously, parties tried to argue that an inheritance should be excluded from the property pool, however this approach is no longer in favour. If an inheritance is received very late in the marriage, after separation, or during a very short marriage the courts will often make a contributions-based adjustment to the extent of the inheritance, e.g. if the inheritance represents 10% of the property pool, the person receiving the spouse will receive a 10% contributions-based adjustment.
It can be difficult to know how to treat an inheritance in a property settlement and each matter will turn on the unique facts of the case.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.