Inheritance
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It is not uncommon for a party to a marriage or de facto relationship to receive an inheritance either before, during or after their relationship. Unless the parties have entered into a financial agreement about how the inheritance will be dealt with, the inheritance is not excluded or otherwise quarantined from the pool of assets to be divided between the parties following separation.
How an inheritance is dealt with in the event of separation will generally involve consideration of the following:
- The time and the length of the relationship;
- The amount received;
- How it was applied; and
- The financial circumstances of the parties at the time of the Court’s decision.
The timing of the inheritance is important. For example, if a party received their inheritance in the early years of a 30-year relationship, then depending upon the amount and how it was applied, the inheritance may not result in a significantly higher contribution assessment to the party who received it. This is because often during long relationships each party makes various financial, non-financial, homemaking and parenting contributions which can offset a financial contribution by way of an inheritance. Conversely, if the inheritance was received late in the relationship or after separation or the parties were in a short-term relationship, then the party who received it will likely receive a higher contribution assessment or the property pool may be assessed on an “asset by asset” approach opposed to a global approach.
The main point is that contrary to popular belief, inheritance is not a protected category of asset. The Full Court of the Family Court in Bonnici & Bonnici (1992) FLC 92-272 made it clear that an inheritance is not shielded from a family law property settlement and the way in which inheritance should be treated will depend upon the circumstances of each case. The trial judge has a wide discretion as to how to treat an inheritance and each case must be looked at in the context of the individual facts.
In some cases, it may be appropriate to include the inheritance in the pool of assets and treat it as a financial contribution. In other cases, it may be appropriate to separate the inheritance from the pool of assets and treat it as a financial resource of the party which may warrant an adjustment of the pool of assets in favour of the other party.
In Miller & Miller [2014] FamCAFC 138, the parties had been married for 10 years and had 2 young children. Three years before separation, the husband received an inheritance which represented a significant percentage of the property pool. In this case, the Full Court decided it was more appropriate to include the inheritance in the pool of assets, however, gave the husband a generous assessment on contributions.
Prospective Inheritance
A prospective inheritance is merely an expectation of receiving an asset at some point in the future, given that there can be assurance that the testator will not change their will. The Courts do not include a prospective inheritance as part of the property pool but may consider it as a financial resource, available to the party who is expecting to receive it, when assessing the future needs of the parties.
While there is no hard and fast rule as to how the Court ought to treat prospective inheritances, the Courts have approached the issue by taking into account:
- The size of the inheritance;
- The likelihood of the inheritance being received; and
- The time at which the inheritance is likely to be received.
The Court will not merely take a prospective inheritance into account because of an assertion that one party has an elderly relative who has property and is, or is likely, to benefit from that property. These types of assertions are speculative and have no relevance. However, where a testator has already made a will that is favourable to the party, but no longer has testamentary capacity (to change the will), there is evidence of their impending death and there is a connection to the section 75(2) factors contained in the Family Law Act 1975, the prospective inheritance would be relevant.
How a prospective inheritance would be treated was discussed in White & Tulloch v White 1995 FLC 92-640. The Full Court of the Family Court considered that a prospective inheritance could not be treated as a financial resource for that party. The Full Court ultimately decided that evidence of a prospective inheritance could be relevant under section 75(2)(o) of the Family Law Act 1975 in a limited number of cases, but each would depend on its own facts.
When the Court is deciding a property settlement it will ultimately need to make a decision that is fair and equitable in the circumstances, in exercising this discretion, the Court can have regard to “any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account”. It is under this section that the Court will have regard to the weight it will give to a prospective inheritance.
There are various factors which will influence the most appropriate way for the Court to deal with an inheritance and the Court has a wide discretion when it comes to property matters. Particularly when it comes to prospective inheritances, the Court will not immediately consider a prospective inheritance as a relevant factor in making property adjustments. It is important to understand how your inheritance, or prospective inheritance, may be treated when it comes to a property settlement.