Is my potential inheritance relevant to my property settlement?

Clients who expect to receive an inheritance often ask us whether it will be relevant to determining property settlement matters with their former spouse. The answer will depend on the facts of each matter, but an inheritance that is expected to be received in the very near future will be, more often than not, relevant to property settlement matters.

The Federal Circuit and Family Court adopts the following process in determining how parties’ assets will be divided upon separation:

1. The court will look at whether it is just and equitable to make an order adjusting the parties’ property by identifying the existing legal and equitable interests of the parties, being the net asset pool.
2. If it is just and equitable to make an order, it will assess the parties’ respective contributions to the asset pool and determine how to divide the property pool based upon those contributions.
3. It will then consider each parties’ future needs, having regard to factors such as a party’s age, health, care of children and income earning capacity. A percentage adjustment may be made in favour of one party after considering those various factors.
4. The court will then assess the overall percentage outcome to ensure the division of property is just and equitable.

Relevantly, the court has discretion when considering each party’s future needs, to consider any fact or circumstance that, in the opinion of the court, the justice of the case requires be taken into account. This can include where one party will receive an inheritance at some time in the future.

The Full Court of the Family Court of Australia (as it was then known) has determined that allowing evidence of a prospective inheritance, being one that may or may not be received at some time in the future, should be a rarity because of the uncertainties involved. The uncertainties include that a person can change their Will so that a party will no longer receive an inheritance. Unless the person who is making the gift under their Will is in very poor health, such that death may be imminent, the time when the inheritance will be received is not known.

Where a person who has made a Will leaving an inheritance to one of the parties no longer has testamentary capacity to change that Will, and is close to death, the potential inheritance will be a factor the court would likely consider relevant to a property settlement.

Where one party has a relative who may leave them property in their Will, but their relative is in good health, has capacity to change their Will if they wish, and there is no suggestion death of that relative is imminent, the court may find the likelihood of an inheritance in that instance has no impact on the property settlement.

Ultimately, each case will be determined on its individual circumstances and there is no ‘one size fits all’ rule. The timing and size of any potential inheritance are all matters that must be taken into account when determining how the property of the parties is to be divided.

If you would like to discuss how an inheritance may be treated in your separation, please contact our family law team.