Australia: I've had a relationship breakdown – What happens to my inheritance?

It is a reality during the course of any given relationship that you may receive an inheritance. If you do, it is important to note how an inheritance may be treated in the event of a relationship breakdown.

One of the misconceptions that I often find is that people believe that their inheritance will be excluded from the asset pool. Generally speaking, it's not - if your inheritance is received during the relationship, a Court will probably include it in the asset pool, available for division between the parties.

It does, however, make a difference to the overall property adjustment. Although it will be treated as part of the asset pool, it will count as a contribution from the person whose relative has passed away.

Let's say, for example, that five years prior to separation you receive an inheritance of $500,000. Thanks to the inheritance, your asset pool is $1,000,000, and the Court will conclude that you brought (indirectly) $500,000 into the asset pool and have contributed far more to the asset pool than your partner. As a result, the Court may determine that your contributions are 75% to the other party's 25%. Therefore, although it is not excluded from the asset pool, you will receive due credit for an injection of funds or property into the asset pool that would not have happened but for the fact that a relative of yours has passed away.

An inheritance received after separation may not be included in the asset pool however, it will be counted as a financial resource. Using the example above, if the sum of $500,000 was received after separation or divorce, but before property settlement, a Court will regard it as a resource. It may mean that the other party will receive more of the $500,000 available, as you have a financial resource of $500,000 that you can use in the future.

Another complicating factor with inheritance is that it often involves a property, and work on the property by the partner who does not receive the inheritance may increase its value. Contributions to inherited property in this respect will be taken into account under Section 79(4) of the Family Law Act.

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.