Each family law property matter broadly involves a four step process:
- The first step is to identify the assets and liabilities of the relationship, and to determine their value
- The second step is to identify the "contributions" of the parties. Those contributions may be:
- Financial (initially, during and after the relationship);
- Non-financial contributions; and
- Contributions to the welfare of the family, including contributions as homemaker or parent.
- The Court then assesses a range of additional factors (called "future needs" factors) under section 75(2) of the Family Law Act 1975 ("the Act"). These factors take into account such matters as the age and state of health of each of the parties, physical and mental capacity of each of the parties for appropriate gainful employment, whether each party has superannuation and a range of other factors detailed under section 75(2) of the Act. In other words, this section refers to the needs of each party, both now and in the future.
- The final step for the Court is to stand back and consider whether the proposed orders are "just and equitable" – that is whether they are fair to both parties in all the circumstances.
Inheritances are not necessarily included in the asset pool available for division (step 1) – a determining factor is timing.
Inheritances Received by a Party During the Marriage
In general, inheritances received by a party while still married are treated as a financial contribution to the joint assets made by the party who received the
inheritance (provided of course that the inheritance was actually applied to the benefit of the parties)
Again, a material factor is timing. Inheritances received at the beginning of the marriage may be categorised as initial financial contributions of the beneficiary spouse. However, the impact of that initial contribution may be diminished by subsequent contributions over a long period – for example a party working for thirty years after the inheritance was received and paying off the mortgage in so doing. Such initial contributions may therefore have little or no effect on the percentage division of the property pool in a long marriage. The same principle applies to inheritances received early in a long marriage – say, in the first five years of a forty year marriage. Depending upon the actual amount of that inheritance, it is likely that the subsequent 35 years of contributions will erode the significance of the inheritance received in the early years of the marriage.
Inheritance monies that have been received and spent are not available for division because they no longer exist. However, the fact (and benefit) of that inheritance may still be taken into account as a financial contribution made by the receiver of the inheritance. This may have the effect of increasing the beneficiary's percentage entitlement to existing property available for division. That is, the beneficiary contributed more and therefore will leave the marriage with more – again, depending upon whether the inheriting party used the monies to benefit the parties. If, for example, the inheriting party spent the monies on a round-the-world trip for themselves alone, that would not be a financial contribution made by them for the benefit of the parties.
Inheritances Received by a Party Late in the Marriage
Inheritances received late in the marriage or after separation will usually not be included in the assets of the parties. The general approach of the court has been to have two asset pools – one being the matrimonial assets and liabilities, and the other being the inheritance monies (or property purchased with the inheritance monies) pool. This two pool approach does not, however, mean that the inheritance falls into some kind of 'protected category".
A late inheritance may be quarantined in the hands of the beneficiary – if division of matrimonial property pool resulted in a fair settlement (step 4). If the matrimonial property pool was too small to result in a fair and equitable settlement, then part or some of the inheritance pool may need to be included in the matrimonial property pool.
Inheritances that come to light after separation, not yet received
An inheritance after separation, but not yet received by the parties, is not property but a financial resource. The practical effect of this is that the inheritance is not available for division. However, the benefit of the inheritance is taken into account as a "future needs" factor (step 3). The beneficiary spouse has a resource that they may draw upon to meet their future needs, whereas the non-beneficiary spouse does not. The non-beneficiary spouse's percentage of the divisible property pool (depending on the facts) may increase.
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.