How are Inheritances Treated in Family Law Property Settlements?

An Inheritance may form part of the Asset Pool on Separation.

When a relationship breaks down, one of the most common questions people ask is what happens to an inheritance that may have been received.

Many assume that an inheritance will automatically remain separate, but in family law, the answer is not always that simple.

In Australia, property settlements are decided by looking at the overall asset pool of both parties. This includes most assets and liabilities, regardless of whose name they are in or how they were acquired. As a result, an inheritance may form part of the asset pool, even if it was received by only one party.

That said, how an inheritance is ultimately treated depends on a range of factors.

What is relevant in determining if the inheritance is included in the asset pool?

When was the Inheritance Received? Timing is Important.

An inheritance received before the relationship began is more likely to be treated as a contribution made by one party at the start of the relationship.

An inheritance received during the relationship, may still be recognised as a contribution by the recipient, but its significance will depend on how it was used including when in the relationship it was received.

An inheritance received after separation may also be taken into account, although in most cases it will be treated differently (depending on the circumstances of the case).

How the Inheritance Was Used.

How the inheritance was used also matters. If it has been kept separate, for example, held in an individual account, it may be easier to identify and it could be argued it should remain with the recipient. However, if it has been used for joint purposes, such as buying a family home, paying down a mortgage, or supporting shared expenses, it is more likely to be treated as part of the shared assets.

Overall Contributions of Both Parties.

The court will also look at the overall contributions made by both parties to the relationship. An inheritance is usually considered a financial contribution by the person who received it. However, this is weighed alongside other contributions, including income, property brought into the relationship, and non-financial contributions such as caring for children or maintaining the household.

The Bottom Line.

Importantly, there is no automatic rule that at separation, an inheritance is quarantined from the asset pool or protected from division. Each case is assessed on its own facts, and the outcome will depend on the overall circumstances of the relationship.

In practical terms, this means that an inheritance may be:

• retained largely by the recipient,
• shared to some extent, or
• fully absorbed into the asset pool and divided between both parties.

If you wish to protect an inheritance, or you are concerned about how an inheritance may be treated, it is sensible to seek legal advice early.

Steps such as keeping funds separate or entering into a financial agreement may help clarify intentions and reduce the risk of disputes down track.