Can a Future Inheritance Impact Your Divorce Settlement?
Updated: 4 July 2024 · Read time: 3 minutes
Generally a future inheritance will not be subject to a family law property settlement.
However there can be exemptions to that, both in terms of one party’s future needs, or even - in rare cases - as property that may need to be divided amongst the parties.
In accordance with Section 79 of the Family Law Act, the term 'property' is broadly defined, covering any asset or right to which either party is entitled. This definition spans a range of assets such as shares, bonds, and land right through to intangible rights known as choses in action.
Property settlements commonly involve a meticulous dissection of assets and liabilities. Amidst the analysis of assets and property, questions can arise about the inclusion of potential future windfalls, such as inheritances, in these settlements.
However, for an asset to be considered part of the marital estate in family law proceedings, it must be in existence or realised at the time of the property settlement, effectively meaning it must be present or tangible as of today.
The Dilemma of a Prospective Inheritance
A prospective inheritance is basically a promise on the horizon, something that has the ability to alter the future financial landscape. However, its inclusion in a divorce settlement rests on its certainty, timing, and significance.
In the past have been called to consider the speculative nature of prospective inheritances delicately.
While Australian law doesn't immediately integrate prospective inheritances into property settlements, they're not entirely dismissed. Rather, the courts examine each case individually, weighing factors such as:
- The likelihood of the inheritance
- The size of the inheritance.
- The proximity of the inheritance, ie when it will be received.
- The imminent needs of the parties involved.
The threshold for substantiating a prospective inheritance as 'sufficiently proximate' is notably high, and recent legal precedents indicate that it's uncommon for the court to consider such potential inheritances in family law disputes.
Considerations with future inheritances
In cases where an inheritance is imminent—where a testator's health is deteriorating, for instance—courts may adjourn proceedings until the inheritance is received. This approach was taken in the In the Marriage Grace case (1997), where the court granted an adjournment to await the fruition of a family trust interest.
In the quest for fairness, the court's goal is to ensure that inheritances are appropriately factored into the equation, considering their impact on the overall property pool. But again, we need to point out that the bar is high, and it is generally uncommon for future inheritances to have much weight.
Conclusion
The court does not automatically treat a prospective inheritance as a pivotal factor in property settlements. Inheritances tend to hold sway in property division decisions when they are near certainty, imminent, and of considerable significance compared to the existing property pool.
