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 that, 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 that a party will receive an inheritance in the very near future.

Parties will often approach their lawyer demanding to see a copy of the Will of their former partner's remaining parent or grandparent claiming that the former partner is going to receive significant funds from the estate. It makes little difference to the property settlement whether that 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 in the absence of evidence showing that the entitlement is more than 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.

In light of those factors, the court will determine whether the inheritance should be considered as a 'contribution' on behalf of either or both of the parties or if the inheritance should be excluded from the property pool, with an adjustment made to the party who does not receive the benefit of the inheritance.

The approach you adopt to the treatment of the inheritance will therefore vary depending on which side of the fence you are sitting. If the inheritance is significant, for instance the size of the property pool, and you are the party who received it, you would be more likely to argue that the inheritance should be excluded from the pool with an adjustment made to your former partner; this will probably provide you with a higher overall property entitlement.

On the other hand, if you are the party who did not receive the inheritance and it has a significant value it is likely to be to your advantage to have the inheritance included in the pool with you to retain a smaller percentage of the overall pool.

Generally speaking, if an inheritance is received in the early or middle stages of a long marriage or de facto relationship it will be included in the pool for distribution and considered as a contribution on behalf of the party who received it. Inheritances received post-separation are usually excluded from the property pool and an adjustment is made to the other party in light of other party's retention of the inheritance.

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 particular case.

At Cooper Grace Ward we have an experienced family law team 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 one of our solicitors if you have, or anticipate receiving, a significant inheritance and wish to consider entering into an agreement with your spouse or de facto partner about how the inheritance will be treated in the very unfortunate event of separation.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.