Inheritances and family law – is yours at risk?

An inheritance is not a protected asset in family law property settlements. Recent authorities reflect that, depending when an inheritance is received, the Federal Circuit and Family Court exercise wide discretion about how it is treated.

Will an inheritance be included in the property pool?

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 no doubt believes they should retain all of it. Alternatively, it is probably advantageous for the ex-spouse to argue that the inheritance should from part of their shared pool of property to increase their overall entitlement.

It can be highly confusing how an inheritance will be treated. In some cases, inheritances are excluded entirely from the property pool; in others, the inheritance will form its own separate pool, distinct from the other property. Whatever approach is adopted, the Federal Circuit and Family Court are required to at least consider the inheritance – it cannot simply be ignored.

My clients often ask if we can request copies of the Wills of their ex’s parents or grandparents. An inheritance will only be considered where it has already been received by one party or where it is likely a party will receive an inheritance in the very near future e.g. if a parent is gravely ill and has lost the capacity to change their Will. The mere expectation of a future inheritance will otherwise not have an impact on the division of assets of the relationship.

It makes no difference to the property settlement whether the family member is worth millions or very little – the Federal Circuit and Family Court 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.

What factors will the Federal Circuit and Family Court consider?

Suppose 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 are the factors the courts will look at?

The family law approach to the treatment of inheritances varies depending on the following:

• 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 may have nevertheless contributed to it
• the size of the inheritance compared to the value of the overall property pool.

The Federal Circuit and Family Court will consider what weight, if any, should be given to the inheritance and assess it along with the other contributions made by each of the parties.

Take away message

It can be difficult to know how an inheritance will be treated in property settlement cases.

I have considerable experience dealing with inheritances in family law property settlements. While I understand it can be a very sensitive issue, I am available to assist you with any queries you may have regarding the treatment of inheritances or property matters in general.

It may also be helpful to speak with me if you have, or anticipate receiving, an inheritance and you wish to enter an agreement designed to preserve the inheritance if you and your partner separate.