How an inheritance is dealt with in a property settlement depends on the circumstances of the particular case.
If an inheritance is received before the commencement of the relationship or around the time the relationship started, it will be considered as an initial contribution by the inheriting spouse. If an inheritance is received during the relationship, how it is treated will depend on the value of the inheritance and how that inheritance was applied to the asset pool when determining that party’s entitlements at separation.
For example, John received $100,000 from his late mother’s estate and applied the whole amount towards improving the family home where he lives with his partner. This increased the value of the family home, which benefited both parties. John’s inheritance of $100,000 which he applied towards improving the family home will be treated as a significant financial contribution by him pursuant to section 79(4) of the Family Law Act 1975.
If an inheritance is received after separation, that inheritance may not be viewed as a contribution to the asset pool, and may be protected from the asset pool available for division.
In most cases though, your inheritance is not protected nor quarantined from the matrimonial property pool when you separate.
What can you do to protect your inheritance received before a relationship commences, or during a relationship?
The best protection is to enter into a Binding Financial Agreement/pre-nuptial agreement with your partner. This can be made before or during a marriage or de facto relationship between heterosexual couples or same-sex couples. The Financial Agreement can be drafted to isolate your inheritance only, so that all the other assets built up during the relationship are not subject to the Agreement, or the Financial Agreement can be drafted to isolate each party’s separate assets including your inheritance.
If you have a family law matter involving an inheritance, or you wish to enquire more about Financial Agreements, please do not hesitate to contact one of our experienced family lawyers on 03 9614 7111 or via e-mail at melbourne@nevettford.com.au. We also have a Deceased Estates team of experienced lawyers who can assist you with your Wills, Powers of Attorney and other estate planning issues including estate administration following a loved one’s death.