When separated couples seek to divide up their assets, the question of how to divide up inherited assets could be a complex one – because there isn’t a simple formula.
In deciding how to treat assets inherited by a party in a family law property settlement proceeding, factors the Federal Circuit and Family Court of Australia will take into account include:
- When the inheritance was received in relation to the commencement and ending of the relationship:
If you already had the inherited asset prior to the commencement of the relationship, it will likely be treated like any other asset you brought into the relationship at the beginning and be viewed as your initial contribution.
If the inherited asset was received during the relationship, the longer the amount of time passed between your receipt of an inheritance and your separation, the more likely that your ex will effectively have a claim to your inherited assets – say if separation takes place many years after you received the inheritance, the inheritance will very likely be treated as merged into rest of the assets for the purpose of a division. You will receive a recognition of the big contribution, but not dollar-for-dollar.
If the inherited asset was received after separation but before the property settlement is finalised, it will still be taken into consideration during the property settlement process; your ex may or may not have a claim to your inherited assets depending on the circumstances.
- The level of inter-mingling between the inherited assets and the parties’ joint expenses and other assets:
The higher the level of inter-mingling, the more likely that your ex will have a claim to your inherited assets. For instance, if the inherited asset was used for the benefit of the family, and your ex contributed to the upkeep or management of the asset, then it is more likely that your ex will have a claim to it.
- The value of the inheritance in relation to the value of the parties’ other assets:
Inherited assets which are of very significant value compared to you and your ex’s other assets are more likely to be included in the property pool for settlement. If say the inherited assets are worth more than you and your ex’s other assets combined, it may be considered inequitable to exclude the inherited assets from your ex.
- The intention of the deceased benefactor:
The court can take into account the intention of the benefactor. If it is shown that the benefactor intended for the heritance to benefit both members of the couple, this will increase the likelihood that your ex will have a claim to your inherited assets.
- The nature of the relationship between the deceased benefactor and the other party:
The court may also take into account the nature of the relationship between the deceased benefactor and your ex – whether they were close, whether they interacted frequently, whether your ex helped to take care of the benefactor, etc. A closer relationship between them may increase the likelihood of your ex having a claim to the inherited asset.
If you and your ex can agree on how to handle the inherited assets outside of court, the agreement can be formalised in the form of a Binding Financial Agreement or consent orders.
Similarly, you may also enter into a Binding Financial Agreement with a current partner or fiancé/fiancée to provide how to deal with assets inherited or to be inherited in case of separation.
To discuss your particular situation, please contact our family law team on 03 9614 7111 or melbourne@nevettford.com.au.