In other articles we have discussed “Who Gets What’ in a Property Settlement which largely deals with the past and the present – who gets what based on a joint history and an ongoing financial situation.
In this article, we look more towards the future and specifically examine what happens to any future inheritance in the separated or divorced world.
The broad but not definitive answer is that when it comes to future inheritance, it will generally not be subject to division under divorce related property settlements but as with many legal aspects there may be variants that need discussion.
How is my inheritance received during my marriage treated once we are separated?
As a starting point, we should discuss what happens to any inheritance pre-separation and or while still married.
If for example a lump sum of cash is deposited into a joint account, it is commingled and by default can be up for grabs by either party in the event of initiating a property settlement.
Commingling need not be limited to cash but can also be in the form of property (eg a house or car).
Examples of commingling of assets might include: –
- A lump sum of $10,000 inherited by one party but placed in the shared bank account.
- A house in inherited, subsequently sold and the proceeds are used to improve a joint current home, buy a bigger house etc.
There are nuances within the law, but some of the key issues surrounding the treatment of inheritances received during the marriage in post-separation property settlements are:
- the timing of the inheritance (e.g. whether it was received early on in a lengthy relationship vs right before separation in a short relationship); and
- whether the assets from the inheritance to one individual became communal or whether they were quarantined by one party; and
- what is actually done with the inherited asset or funds (e.g. whether they were used to improve the financial circumstances of the family); and
- the size of the inheritance (particularly in comparison to the size of the parties joint asset pool before the inheritance was received).
Taking into account the above factors, adjustments in favour of the party who received the inheritance can be made.
What happens to future inheritance under Divorce?
If you receive an inheritance before you have finalised and formalised your property settlement with your former spouse, the inheritance must be taken into account in your property settlement.
This is because the court is required to consider all of the current financial circumstances at the time they are being asked to make an order.
However, this does not mean that your former spouse will receive a portion of the inheritance or the value of the inherited amount. Rather, the considerations discussed above will be taken into account and adjustments made in favour of one party over the other accordingly.
Broadly, any inheritance received after separation will not be subject to division PROVIDED that the parties have formalised their settlement by way of either a Consent Order, Court Order or Binding Financial Agreement.
This is why it is often imperative for matters to be finalised properly as soon as possible so that former partners do not get the benefit of an inheritance received post-separation.
While Judges do have discretionary powers to re-open matters once finalised due to for example, a significant post-separation inheritance received by one party, this would only be done in the rarest of cases and only where the circumstances of the case warrant it.
As untasteful as prenups and other financial safeguards may be to consider, anyone who has concerns about their marriage or relationship would benefit from obtaining legal advice about how best to protect any future inheritances.
If you need any help discussing family matters, divorce or property and financial matters, please call our team on 07 3837 5500.