There are common misconceptions regarding the protection of inheritances and gifts received during the course of a relationship.
Inheritances are not automatically “protected” from division with your spouse or partner in the event of a breakdown of your relationship. This means that any inheritance you receive may still form part of the funds to be divided between you.
If the inheritance or financial gift does form part of the assets to be divided between you, then an examination needs to be undertaken of how that financial contribution has impacted the value of the assets you hold. The assessment of this financial contribution is important and may have an impact on the overall distribution of the assets between you.
The emotional ties to inheritances and financial gifts can make the proposition of division between separating parties more difficult. Understanding how inheritances and financial gifts are treated in the context of Family Law can help you start a conversation and consider the options available to you to protect these important bequests.
The Court’s approach
The Federal Circuit and Family Court of Australia (the Court) has a discretion as to how to treat an inheritance; as such each matter turns on its own facts.
Several factors impact on this treatment including the timing of the receipt of the inheritance and the application or use made of the inheritance. For example, was an inheritance used to pay down a Mortgage or was it used to fund a holiday?
The timing of the receipt of an inheritance can impact how the Court will deal with it. For example:
- Early in the relationship – these inheritances are generally included in the main pool for division and assessed as a contribution.
- At the time of separation (i.e. just before or just after separation) – the Court has a discretion to exclude these inheritances from the matrimonial asset pool, but then consider the impact the inheritance has on other factors relevant to the matter as a whole. This may then require an adjustment to the other party from the matrimonial assets available for division to ensure the overall division of assets is just and equitable between the parties. Generally, the Court will only “quarantine” an inheritance from the matrimonial pool of assets, in a second pool, when the matrimonial pool is sufficient to satisfactorily provide for the other party.
- Potential future inheritance – the Court may treat a future inheritance as irrelevant unless it can be shown that the inheritance is almost certain to occur and is to be received imminently. There is no absolute rule that the Court will apply in relation to a potential future inheritance.
Obtaining advice as to your rights and entitlements is a crucial first step in allowing you to move forward with confidence.
Our Family Law Team can assist you to discuss all your family law needs including protection of future inheritances and financial gifts.