Divorce and separation can be challenging to navigate, and an inheritance can increase the complexities. You might wonder if the inheritance will get divided in the divorce. If your ex can claim a part of it after divorce. Or if the inheritance can impact spousal maintenance.
These are good questions. If you’re navigating separation or divorce, and you have received or expect to receive an inheritance, you need to understand the best way to handle it.
This guide is here to help explain what happens to inheritances before, during, and after divorce, whether you’re the person receiving the inheritance or the other party who is wondering what your entitlements might be.
What is an inheritance in Family Law?
Let’s start with the background. Most of us will understand what an inheritance is generally, but what is an inheritance for the purpose of Family Law?
The Family Law Act 1975 provides the legislative basis as to what an inheritance is and how they are treated as part of property settlements. The definition is quite broad. An inheritance is essentially any asset – whether that’s money, property, shares or even sentimental heirlooms—that a person receives from someone who has passed away.
In most cases this will be a family member or close friend, and the inheritance will be received through a will or the rules of intestacy (these say how property is divided when there’s no will and vary from state to state).
Can an inheritance be taken or divided in a divorce?
In Family Law, how an inheritance is treated typically depends on when it has been received or is expected to be received. Inheritances can then be quarantined from the assets and debts to be divided and treated as a financial resource of a party, or as an asset that forms part of the relationship property pool to be divided. If the inheritance forms part of the pool of assets to be divided, the Court will need to treat the inheritance as a financial contribution by the party who inherited the relevant assets.
So yes, an inheritance can be included in a Family Law property settlement division, depending on the circumstances, however if included in the asset pool to be divided the inheritance will not necessarily be divided 50/50.
Factors for inclusion in the property pool
Inheritances may be treated by the Court as part of the asset pool. To determine whether a Court should include the inheritance in the asset pool to be divided between the parties, the Court will consider the following:
- When the inheritance was received.
If the inheritance was received during the relationship, then it will be more likely to form part of the property pool than, for example, an inheritance received after the parties have already separated. - Who received it.
The beneficiary who inherited the assets will be a factor that the Court will consider. - How it was used.
The Court will consider how the inheritance was used or spent by the parties. If the inheritance was quarantined and kept separate from other joint assets, there is a stronger argument that the inheritance should not form part of the pool of assets to be divided. However, if the inheritance was applied towards joint assets, such as money deposited into joint accounts or applied towards the family home, the inheritance is more likely to form part of the pool of assets to be divided. - The length of the relationship.
The longer a relationship, the more likely all property, including inheritances, will form part of the pool of assets to be divided.
Factors for division of inheritance within a property pool
Even if included in the property pool to be divided between the parties, an inheritance won’t automatically be divided 50/50. Instead, the Court will apply the five-step test of property division with all your property in the asset pool, including inheritance where applicable:
- Considering whether it is just and equitable to make any Order adjusting property interests.
- Identifying and valuing the property
- Considering the contributions, both financial and non-financial, of each party
- Considering the future needs of the parties
- Considering whether the overall property settlement proposed is just and equitable
Timing of the inheritance
We’re often asked whether an ex-wife or ex-husband can claim an inheritance after divorce. We know that when the inheritance is received makes a difference to how it’s treated. And sometimes it can form part of the relationship property pool even after divorce.
Here’s what you need to know.
Inheritance received during a relationship and before divorce or separation
If an inheritance is received during a relationship and before divorce or separation, the following factors may apply:
- If the inheritance was received during the relationship and long before the relationship broke down, it will likely be considered as part of the pool of assets to be divided.
- If the inheritance was spent on shared expenses or purchases, it will also likely be treated as part of the pool of assets to be divided.
- If the funds were held as part of joint assets (for example, in a joint bank account), they will also likely be treated as part of the pool of assets to be divided.
If an inheritance forms part of the pool of assets to be divided, the Court will also need to consider whether an adjustment should be allocated to the party who was the beneficiary of the inheritance for their greater financial contribution.
On the other hand, if the inheritance was received just prior to the separation, if it was kept separate from joint assets (for example, in a separate bank account), and if it was never used to make joint purchases or payments, a Court may quarantine the inheritance into its own separate pool.
Inheritance received after divorce or separation: Can my ex claim inheritance after divorce?
Many people are also eager to understand if an ex can claim inheritance after divorce. If an inheritance is received after separation, the following factors may apply:
- If your property settlement is already finalised and formalised by way of an Application for Consent Orders or a Binding Financial Agreement, future inheritances will not form part of the pool of assets to be divided, as the parties have already finalised the division of assets.
- However, if your property settlement isn’t yet complete—even if you are legally divorced (provided it is within 12 months from the date that the Divorce Order is final)—and one party receives an inheritance, the Court may still consider the inheritance to be part of the property pool to be divided or may quarantine the inheritance into its own pool to be retained by the beneficiary.
Note—when you’re going through a divorce or separation, it’s always a good idea to get moving on your property settlement and obtain advice from a lawyer as soon as possible.
It is important to also note:
- Parties to a de facto property settlement have up to two years from the date of separation to commence property settlement Court proceedings.
- For married couples, once a Divorce Order is final, parties have up to twelve months to commence property settlement Court proceedings.
For any application after the above time frames, the Court may need to have a separate hearing about whether the Court should have jurisdiction to hear the matter ‘out of time’.
Bonus factor—what were the intentions of the benefactor?
If the deceased providing the inheritance intended the money or property to benefit both parties, then it could still be considered part of the property pool, regardless of timing. For example, if the will says that the gift is for ‘my daughter and her husband’ versus ‘my daughter’, this will lean more heavily in favour of the inheritance being divided between the ex-couple.
The Court will look at the wording of the will and how the inheritance was used and managed to make this decision.
FAQs for inheritance and divorce
Does inheritance affect spousal maintenance (aka, alimony)?
Yes, it can. If a person receives a large inheritance, this could be considered a financial resource, and that can impact their ability to financially support themselves or to support their ex-partner.
In the first instance, if you receive an inheritance that puts you in a better financial position to support yourself, the Court may award less or even no spousal maintenance to you. In the same vein, if you receive an inheritance that puts you in a better financial position to support your ex-partner, you may be ordered to pay more spousal support.
Can I do anything to protect an inheritance before we separate?
Binding Financial Agreements (BFAs) can be entered into at the start of a relationship, during a relationship, or at the end of a relationship.
BFAs can allow parties to contract out of the Family Court. BFA’s can specify how certain assets will be divided if parties separate, including any inheritances already received or future inheritances.
Know your rights & plan ahead
Navigating divorce and inheritance is challenging. Every situation is different, and it’s always best to get advice and support from a lawyer as soon as possible.
At Watts McCray our family law team is here to help you understand how your inheritance will likely be treated, finalise your settlement to protect future gifts, and negotiate a fair division of your assets. We’ll help you get the best results for your unique situation.
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Still got questions? Chat with our experienced family law team.
