Is Inheritance Included in the Divorce Settlement?

Is Inheritance Included in the Divorce Settlement?

There can be common misconceptions around what happens to the inheritance you may receive at the end of your relationship or after you have separated. Amongst the property settlement you are already dealing with, the question arises- will my inheritance become a ‘protected category’ that can be separate to the asset pool available for distribution to the other spouse?


Inheritance after divorce

Generally speaking, the Family Court will apply wide discretion and inheritances will be assessed on a case by case basis and depend on the circumstances of your particular case. Mostly, a large deciding factor will be looking at what stage of the relationship the inheritance was received at and the size of the inheritance particularly in comparison to the total marital asset pool.


Timing of the inheritance

If inheritance was received later on in the relationship or post separation, the court will treat it as a financial contribution by the spouse, but not always. Unless for unusual circumstances, a party may not be seen as contributing significantly towards an inheritance received later on in a relationship or post separation. Along with other factors, this may allow the courts to quarantine the inheritance from the asset pool available for distribution.


Size of asset pool and inheritance

Depending on the size of the asset pool available for distribution, it could possibly change the way courts view a post separation inheritance. If there are no substantial assets besides the inheritance, it may be included in the pool of property that is available for distribution, particularly if the other spouse has made significant financial or non-financial contributions in the relationship. There is a need to look at what is done with the inherited asset and whether they were used to improve the financial circumstances of the family.


Global approach vs asset by asset approach

The court can consider a ‘global’ approach which amounts to all of the assets being pooled, and subsequently divided in accordance to the principles set out in sections 79(4) and 75(2) of the Family Law Act 1975.

Secondly an ‘asset by asset’ approach which amounts to each individual asset being divided between the parties in accordance with each of their respective contribution relevant to that asset.


Leading Court Decisions

The asset by asset approach was endorsed in the Full Court- In the marriage of Bonnici [1991] FamCA 86 and later re-affirmed again in Bishop v Bishop [2003] FamCAFC 138. These cases proved that there is no requirement that inheritances received late or post separation will always proceed to be present in the asset pool or linked to the asset pool during trial. In both cases, the Full Court affirmed that the other spouse cannot be regarded as contributing significantly to an inheritance received late in the relationship and certainly not after it has terminated, except in very unusual circumstances which may include:

In the case of Bishop the facts were:

  • the parties’ cohabitation period was around 25 years with 3 children together;
  • apart from the inheritance, the parties’ net assets totalled $1.134 mil, of which $900,000 was deferrable to the farm which the Husband worked;
  • about two years prior to separation, the Wife received an inheritance worth about $252,000, of which $207,000 still remained in a bank account at the time of trial;
  • the Federal Magistrate excluded the inheritance from then joint asset pool, and only have regard to it when considering any S 75(2) adjustments;
  • the authority in Bonnici was followed and in full support of the asset-by asset approach whereby inheritance received late or post separation will not be considered in the joint asset pool when there are sufficient other assets to provide fairly for the other party.


Additional considerations

The courts will also consider the disparity of the parties’ income earning capacities and if a family member made substantial financial contribution after separation because of the inheritance they received post separation. But an important note to remember is that courts will have wide discretion and always consider this issue on a case-by-case level.


Contact a Family Lawyer

If you are facing questions and confusion surrounding inheritance received late or post separation and would like legal advice specific to your family law matter, please feel free to contact our Gold Coast and Sydney family lawyers for a free confidential initial consultation.