Say you have recently separated and no property or financial settlement has yet been finalised. You have a very elderly great aunt who is wealthy and to whom you have always been close. Your former de facto partner or spouse now wants you and/or your great aunt to produce the Will. Your first reaction is outrage. However, similar scenarios are not entirely uncommon in the Family Law Courts. How prospective inheritances and inheritances that have been received are treated when assessing property settlement entitlements depends on the circumstances of the Case.
- Has the inheritance been received?
A prospective inheritance is not considered to be property nor necessarily a financial resource[1]. While it is not usually taken into account in the division of assets, as the testator will change his/her Will before dying, this is not an absolute rule. There have been cases in which prospective inheritances have had an impact on the final division of assets through the operation of section 75(2)(o)[2] of the Family Law Act 1975 ('the Act').
The Court in the case of Tulloch & White stated:
"in a case where the testator had already made a Will favourable to the party but no longer had testamentary capacity and there was evidence of his or her likely impending death in circumstances where there may be a significant estate, and where there was a connection to s 75(2) factors, it would be shutting one's eyes to treat that as irrelevant"3.
Alternatively, cases have been adjourned in situations where there is likely to be a significant change in the financial circumstances of either of the parties.
It is important for parties to assess their respective financial situations and obtain advice as to the potential impact of inheritance on them.
If the inheritance has already been received, it is included as property of the parties. However, the treatment of such an inheritance may vary.
- When was the inheritance received during the relationship / marriage?
An inheritance is presumed to be a contribution on behalf of the person inheriting it unless there is evidence to the contrary4.
The earlier an inheritance is received in the marriage or relationship, the less likely it is that there will be an adjustment in that party's favour at the time of settlement. While it is possible that if the inheritance is significant that there will be some adjustment in favour of the receiving party on a contributions basis, the contributions made over time by each party need to be taken into account and the inheritance contribution may be said to have been "eroded" over time.
Parties also need to consider if a "springboard" argument can be made, that is, if the inheritance has led to future wealth, such a contribution may be less likely to be eroded5.
- Was the inheritance received after separation?
If an inheritance has been received very late in the relationship or after separation, except in unusual circumstances, it may be excluded from the claim6.
However, this does not mean that parties can refuse to disclose or disregard such inheritances. Full and frank disclosure still needs to be made by each party and the inheritance needs to be considered.
If the inheritance is excluded, adjustments can be made to the division of assets when taking into account factors contained in section 75(2) FLA, but commonly in cases where late inheritance has been received by one party, any adjustment for section 75(2) factors has been modest.
- In what form is the inheritance?
A party who has applied cash inheritances to the general needs of the family may have a different argument to a party who received an inheritance in the form of real estate, expended no money on it, and still owns the same real estate at the time of separation and at the time of trial.
The Court in the matter of Lee Steere stated:
"the relevance of the inheritance or gift to one party during the marriage may depend upon the use to which that property is put by the parties."7
It is potentially more possible that an asset which is still in existence in its original form and to which no contributions have been made will be quarantined from the pool.
- How big is the non-inheritance asset pool?
If the non-inheritance pool is much less that the inheritance received, and it would therefore result in an unjust or inequitable division, the Court may use the inheritance to adjust for it8. The Court in the case of Bonnici stated:
"if...there had been no other assets than the husband's inheritance, but the wife had...clearly carried the main financial burden in the support of a family and also performed a more substantial role as a homemaker and parent...then it would clearly be open and indeed incumbent upon a Court to make a property settlement in her favour from such an inheritance."
This ties in with the issue of ongoing post separation contributions made by a party which will be dealt with in a further article.
- Who actually received the inheritance?
Although an inheritance received by one person is generally considered to be the contribution of that person, there are some cases in which the Court considers it to be a contribution made by both parties. The non-receiving party has to bring evidence to show how they have made contributions toward the receipt of the inheritance.
For example, if the non-receiving party has assisted in a significant way to care for the receiving party's relative/friend leaving the inheritance9, or if the non-receiving party had made improvements to real estate the subject of the inheritance without receiving any benefit10, there may be an argument that can be made that the inheritance was also a contribution on that person's behalf.
There needs to be a clear nexus between the contribution and the property which would otherwise be treated as a sole contribution and it goes without saying that the acts need to be significant. Visiting the testator 6 times in hospital (amongst other things) has not been considered to be significant11.
The issue of inheritances can be complex and if you or your ex former facto partner or spouse are about to become or are the recipient of an inheritance we recommend you seek legal advice.
Footnotes
1 Tulloch & White (1995) 92-640 – a financial resource connotes "some degree of entitlement to, control over, or relative certainty of receipt of property'
2 See for example In the Marriage of De Angelis [1999] FamCA 1609
3 Tulloch & White (1995) 92-640
4 See Kessey and Kessey (1994) FLC 92-495
5 See Underwood (1981) FLC 91-020
6 See Bonnici (1991) FLC 92-272
7 See Lee Steere (1985) FLC 91-262
8 See Bonnici (1991) FLC 92-272
9 See James and James (1978) FLC 90-487
10 In the Marriage of De Angelis [1999] FamCA 1609
11 See for example Nikas & Anthis [2015] FCCA 1871
For further information, please contact:
Sherlene Heng, Senior Associate
Phone: +61 2 9233 5544
Email: SXH@SWAAB.COM.AU
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.
