Families and money can sometimes be a volatile combination. That is never more so than when divorces and Wills are concerned.
When is an inheritance an asset for family law purposes?
The simple answer is “almost always”. But the answer is not always simple.
In a recent 2021 case of Roverati & Roverati [2021] FamCAFC 89 the Family Court confirmed the decision of an earlier case in Dickons & Dickons [2012] FamCAFC 154 that in considering how to determine the adjustment of property between parties the court must take into account and afford appropriate weight to the introduction of the inheritances into the relationship, but also to have regard to the use(s) made of those contributions.
The court in the Dickons case also held that in any property settlement “The essential task is to assess the nature, form and extent of the contributions of all types made by each of the parties within the context of an analysis of their particular relationship.”
Why is an inheritance an asset?
When a separating couple needs to divide their assets, they must work out what is in the pool of net assets to be divided. That pool includes all the assets and liabilities in each person’s name and in the parties’ joint names, as well as each person’s share of an asset owned jointly with another person.
If one person received an inheritance before or during the relationship, that inheritance would normally form part of the pool of assets available to be divided.
Does that mean my partner gets half my inheritance?
No, not necessarily. Just because an asset is included in the pool of assets available for distribution does not mean that the asset or the whole pool will be divided 50/50.
Once the couple has worked out what is in the pool of net assets, they must then consider what contributions they each made and consider their respective future needs, in order to work out the percentages of the net assets they will each receive.
What are contributions?
When working out which partner made what contributions, family law looks at both:
- financial contributions – such as who earned what, who brought any lump sums into the relationship, who bought particular assets and who paid for various items or expenses–
and also
- non-financial contributions – such as being a homemaker and parent, physically renovating a home or landscaping a garden, managing the parties’ financial affairs, etc.
After a long relationship, where there haven’t been any significant inheritances or other financial windfalls, the Court usually finds that financial and non-financial contributions during the relationship were roughly equal.
An inheritance received by one partner before the relationship started would be treated as an initial financial contribution by that partner that is money or assets that person brought into the relationship. Similarly, an inheritance received by one partner during the relationship is usually considered to be a financial contribution by that person.
Depending on factors such as the size of the inheritance, when it was received, what it was used for and the parties’ other contributions, a determination might be made that the person who received the inheritance would be treated as having made greater contributions during the relationship.
What about an inheritance received after separation?
This situation is less clear cut. The Court usually finds that an inheritance by one partner was contributed solely by that person. So, it would usually find that the other partner did not contribute to the post-separation inheritance.
However, different circumstances could produce a different outcome. For example, if the post-separation inheritance had been received from the husband’s mother and the wife had had a close relationship with her mother-in-law and had cared for her during an illness, the Court might find that both parties had contributed to the receipt of the inheritance.
In the case of De Angelis (2003) FLC 93-133, the contributions made by the husband to the wife’s mother’s property were considered by the Court in its treatment of the wife’s inheritance of the property. Lindenmayer and Finn JJ, quoting the trial judge, stated that:
[t]he husband has contributed to a very substantial extent to the expectation of the inheritance of the wife’s mother’s home, both as to its value by his labours and contribution to the cost of renovations and maintenance and because of his contribution to which allowed the wife to care for her mother … these contributions ought to be taken into account in adjusting the parties’ division of property.
Future needs
After working out financial and non-financial contributions, it is necessary to have regard to Section 79(4) (e ) & section 75(2) of the Family Law Act and undertake a comparison of each person’s future needs before finalising a percentage division of the net assets. Future needs include things like income, earning capacity, financial resources, ongoing care of children, age, health, etc.
An inheritance, even one received after separation, could be relevant at this step. If the inheritance causes the recipient to be in a much better financial position than the other spouse so that their future financial circumstances would be significantly better than those of the other spouse the Court would probably adjust the percentage division of the net asset pool to improve the financial position of the other spouse.
Summary
1.An inheritance received before or during a relationship will almost always be treated as an asset available for distribution between separating parties, whereas an inheritance received after separation will usually be found not to fall into that pool of assets.
2.Just because an asset is included in the pool of marital assets does not necessarily mean that the other spouse is entitled to half the inheritance. The receipt of a large inheritance is generally regarded as a specific contribution from that person to the asset pool.
However as held in the recent case of Roverati restating the principle from the Dickons case, “the assessment of contributions is not a mathematical or accounting exercise, ===, it is an holistic undertaking with all of the contributions of the parties of whatsoever nature being taken into account “(Dickons & Dickons [2012] FamCAFC 154; (2012) 50Fam LR244.
3.Even if an inheritance is received after separation it may be relevant to an adjustment of the property interests taking account of the parties respective future needs.
Every case is different and how an inheritance might be treated in your situation will depend on your particular circumstances. If you need assistance or advice on how to proceed please call us on 02 9699 9877 or email [email protected].