Family LawIs my inheritance protected after separation?

You may be in a situation where you have separated from your spouse or de-facto partner, and you received an inheritance either just before the date of separation or shortly after separation.

The question many people ask is whether their inheritance is a protected asset when dealing with their property settlement and whether their ex-spouse/partner is entitled to a share of it.

The treatment of an inheritance is determined on a case-by-case basis however there are two approaches the Court will take:

1. Treat the inheritance as an asset of the parties and therefore forming part of the asset pool to be divided, OR
2. Treat it as a financial resource and exclude it from the asset pool.

INHERITANCE POST-SEPARATION AND HOW THEY ARE TREATED IN FAMILY LAW

Inheritances received at the time of separation or shortly after, will often not be regarded as a contribution to the matrimonial asset pool and will therefore not form a part of the joint asset pool that is up for division. However, the Court still maintains the discretion to treat inheritances as they deem appropriate and determines this on a case-by-case basis.

In the case of Bonnici & Bonnici (1992) FLC 92-272, the Full Court of the Family Court confirmed that an inheritance is not protected from a family law property settlement, and the treatment of inheritance is reliant on the individual circumstances of each case.

Factors that may influence the Court’s decision is whether there was commingling of the inheritance such as monies being used by both parties or the intention of the testator and whether the inheritance was intended to benefit both parties.

Whilst the Court may exclude inheritances from the asset pool, it may still consider the inheritance as a “financial resource”.

After working out financial and non-financial contributions of the parties, the future needs of the parties are assessed before determining a split of the net assets and whether any adjustment should be made in favour of the party in need.

Future needs include factors such as income, earning capacity, age, health. Therefore, if you receive an inheritance post-separation and your ex-partner has future needs – your ex-partner may receive an adjustment in their favour meaning you may receive less of the overall asset pool due to your financial resource.

Considering the above, an inheritance received post-separation is not considered a protected asset.

Ultimately, it is important to note that in the Federal Circuit and Family Court of Australia, your asset pool is determined by the value of assets at the date of trial. As such, it is crucial that you do not delay your property settlement after separation (especially if you are expecting an inheritance) and that you formalise any agreement with your former spouse or de-facto partner either by way of a Binding Financial Agreement or Consent Orders.

Article written by Betul Kaygisiz of our Melbourne office.