There is no ‘one rule fits all’ situation when it comes to dealing with inheritance in divorce proceedings. There is a wide discretionary area for judges when dealing with matters of property. In a property settlement, the particular circumstances of each case determine how an inheritance is dealt with. What the deceased intended when they made bequests in their will is one of the factors that decide if an inheritance is protected from distribution or forms part of an asset pool.
Divorce and Inheritance LawsInheritances can be divided while your divorce is being processed. When asking if you can lose your inheritance during divorce settlement proceedings, consider:
- When you received the inheritance.
- The recipient of the inheritance.
- The length of the relationship.
- The contributions made during your partnership, and by whom.
- What the inheritance was worth, and how it relates to the complete asset pool.
- How long the relationship lasted.
- Whether both parties contributed to the purchase or upkeep of a property with the inheritance.
- Whether the value of the inheritance was minor in comparison to the equity accumulated over the years.
Timeframe Of InheritanceWhen an inheritance is received makes a difference. An inheritance received at the beginning of a relationship would be deemed an initial contribution from the individual. As such, its value would not be deducted from the asset pool, although it would be taken into account when deciding entitlements in the event of a separation. The size of any adjusting impact to an individual’s entitlements will depend on how much each party contributed to the asset pool. How inheritances received during a relationship depend on what the benefactor intended and how the finances were applied. For example, money spent on everyday expenses or improving the family home would generally be considered a financial contribution made by the person receiving the inheritance. An inheritance comes about after separating or in the latter stages of a relationship. It is less likely to be considered a contribution and may be protected from a distribution between the couple.
What Were The Benefactor’s Intentions?If the benefactor had specific intentions concerning the inheritance, those intentions might sway its treatment. For example, where the deceased was clear about the whole family benefiting from the inheritance, it is likely to be deemed a part of the asset pool. Alternatively, they may have intended and made the bequest out to a particular person for a specific purpose. In that case, the money is likely to have been kept separate from the total assets and considered separate. If the beneficiary’s spouse helped care for the deceased, perhaps a parent living with them, any inheritance would likely be considered as belonging to the whole family.
Asset Pool SizeA large inheritance received toward the latter period of a relationship may be treated as part of a small asset pool, especially if dividing the asset pool less the inheritance would cause an unjust settlement.
Property Settlement Through CourtResolving divorce settlement issues outside of the courts is always the preferred method. Family dispute resolution or negotiating directly through solicitors can help achieve such a resolution. Unfortunately, it isn’t always possible to sort things out without applying to the Federal Circuit Court for property orders. If one needs to apply for property orders, they must do so no longer than 12 months after their divorce becomes final or within two years after a de facto couple separates.
Protecting Your AssetsIf you’re still with your spouse or de facto partner when they die, there are some things you can put in place to protect your assets. Signing a financial agreement is the best form of protection. Also known as prenups, or prenuptials, financial agreements can be drawn up before, during or after de facto relationships or marriages in Australia. Agreements can be sorted out to separate assets built up through the course of the relationship from any inheritance. While financial agreements are the best form of protection available to safeguard your inheritance, there is a possibility they can be set aside in the future.
SeparatedThe family law court could do a couple of things to protect your inheritance if you have separated from your partner.
- Quarantining the inheritance ensures that the spouse receiving the inheritance keeps it along with their share of the combined contributions and future needs.
- Including the inheritance into the asset pool, which will be divided between the parties. To do this, the court considers the inheritance as a contribution by the person receiving it unless there are unusual circumstances. However, the court will not reimburse them the entire amount of the inheritance, dollar for dollar. They may receive a more significant portion of the asset pool reflecting their inheritance as a contribution.