How an inheritance is dealt with in a property settlement depends on the circumstances of the particular case. When the money was inherited, what the intentions of the deceased were and how the money was used will all be relevant factors in determining whether the inheritance forms part of the asset pool, or is ‘protected’ from distribution in the settlement.
When the inheritance was received
If an inheritance is received before the start of the relationship or around the time the relationship started, it will be considered an initial contribution by that party. The value of the inheritance will not be separated from the asset pool. However, the value of the inheritance as one of the contributions made by that party will be taken into account when determining that party’s entitlements upon separation. Depending on the size of the inheritance and the amount of the party’s other contributions to the asset pool, the inheritance may have a large or a small adjusting impact on the party’s entitlements.
If an inheritance is received during the relationship, how it is treated will depend on how the money was applied and the intentions of the benefactor. If the money is spent on improving the family home, paying for the day to day expenses of the family and generally used for the benefit of both parties, it will be treated as a financial contribution by the party who received it.
If an inheritance is received late in the relationship or after separation, it will generally not be viewed as a contribution to the asset pool. Such an inheritance may be ‘protected’ from distribution between the parties.
The intentions of the benefactor
If the deceased had specific intentions for the inheritance, this may influence how it is treated. For example, if they made it clear that it was for the benefit of the family as a whole, it would be likely to be regarded as part of the asset pool. On the other hand if the money was bequeathed to a party for a particular use and if the party kept the money separate from the rest of the assets, it would likely be treated as separate from the asset pool.
If the spouse of the beneficiary assisted with caring for the deceased – for example, if the deceased was a parent who lived with the couple, the inheritance would more likely be treated as belonging to the family as a whole.
Size of the asset pool
Where a large inheritance is received late in a relationship and the asset pool excluding the inheritance is small, the inheritance may be treated as part of the asset pool if a division of the asset pool without it would result in an unjust settlement considering the parties’ contributions. In other words, if the party who has made the greater contribution is not the one who receives the inheritance, the inheritance may be used to provide that party with a just settlement.
Going to court for a property settlement
It is always preferable for parties to any family law matter to resolve the situation out of court if this is possible. This can be done through direct negotiations, through lawyers or by undergoing Family Dispute Resolution. If a dispute cannot be resolved out of court, either party can file an application for property orders in the Federal Circuit Court. An application must be filed within 12 months of a divorce becoming final or for de facto relationships, within two years of the date of final separation.
If you require legal advice or assistance with a family law matter, please contact Go To Court lawyers.