If you’ve received an inheritance and have worked hard to invest it wisely, a key concern will be whether it can be divided during divorce proceedings. 

It is possible that any inheritance you’ve received may be included in the property asset pool if you’re separated and have not yet finalised your property settlement. The Family Court has a wide discretion in this area, so here’s a general guide to help navigate such a complex issue.

What is an inheritance?

In legal terms, an inheritance refers to the assets, property, or money that a person receives from the estate of a deceased individual through a will, in accordance with the benefactor’s (or testator’s) wishes.

Can my de facto partner claim my inheritance?

In Australia, the laws regarding the division of property in the event of a relationship breakdown, including de facto relationships, are primarily governed by the Family Law Act 1975. De facto couples who have been living together for two years or more, including both opposite-sex and same-sex relationships, are subject to similar legal principles as married couples when it comes to property settlement.

Factors considered by the Family Court

When it comes to resolving the division of assets during divorce proceedings, taking it to court can sometimes be necessary. Inheritance entitlements in Australian family law is guided by the principles of the Family Law Act 1975 where the court will assess the financial circumstances of both parties and consider various factors to determine a fair and equitable distribution of assets. 

In divorce proceedings, an inheritance is typically treated as your financial contribution, which may be taken into account when determining a fair division of property. However various factors come into play, including:

1. The amount of the inheritance and how it was used

The court may consider the size of the inheritance compared to the value of the joint asset pool and may include it to make sure there is an equitable property settlement for both parties. The way the inheritance was used can also impact its treatment. For example, if the inheritance was used for the benefit of the family, such as a new car or home improvements, it would be considered a marital asset.

2. When the inheritance was received
  • Before the relationship: likely to be considered an initial contribution to the marriage;
  • During the relationship: also usually considered a contribution to marital assets, if spent on family expenses;
  • After separation: the only time you may be spared from including the inheritance in the division of the total asset pool. 
3. The contributions and financial circumstances of each party

The overall contributions of each spouse to the marriage, both financial and non-financial, will be assessed. This includes homemaking, parenting, and financial contributions. The court considers the overall contributions when determining a fair settlement, as well as factors like age, health, earning capacity and care responsibilities.

4. The wishes and intentions of the Benefactor or Testator 

This is relevant and the relationship between your ex and the benefactor will be considered, as will their intentions for the inheritance to be used by the whole family.

When your spouse or partner has contributed

If the inheritance was a beach house for example, and your ex paid for half of its renovation, then they have contributed to the value of the asset. The court will assess both financial and non-financial contributions, including homemaking and parenting.

A word on future inheritance in divorce settlements

Any expected inheritances in the future, generally will not form part of the asset pool in a divorce, which could be a relief to know. This is because wills can change at any time while the benefactor is still alive. 

How to better safeguard your inheritance

Wondering how to keep inheritance separate from your spouse? Think again because generally, inheritance isn’t automatically considered a protected asset in family law matters unless it’s been entirely preserved, such as being kept in a separate term deposit account since receiving it. Even in that case it could easily form part of the property pool for adjustment between a couple. 

If it’s substantial, the best safeguard for either married or de facto couples is a binding financial agreement, or “pre-nup”. 

A Binding Financial Agreement 

One effective strategy is to enter into a Binding Financial Agreement (or a “pre-nup” – regardless of whether or not you are a de facto or married spouse), that clearly outlines the division of property, including the status of your inheritance. These agreements provide a legal framework for protecting your assets in the event of a separation. 

You can enter into a Binding Financial Agreement at any time before and during the relationship that designates your inheritance as separate property. This can protect your inheritance.

What if we can’t agree?

If agreement just can’t be reached, a consent order can be lodged with the court, after negotiation and agreement with your ex. This is a legally-binding document outlining the property settlement terms. Remember that the court decides though, so it may or may not be in your favour.  

When it comes to resolving the division of assets involving an inheritance during a separation, it’s beneficial to try and reach an agreement with your partner, but taking it to court can sometimes be necessary.

Each case is unique, so for expert legal advice to understand how these factors apply to your circumstances, speak with the team at Rockwell Family Lawyers. Book a consultation with our experts today.

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Meet the Author

Allyson Gagliardi

Allyson holds a Bachelor of Laws and Bachelor of Arts (media and law) from Griffith University. Graduated from the Legal Practice Course at the end of 2000, Bar Practice Course in February 2001 before joining what is now Allen’s that same year.