Does an inheritance affect a divorce settlement?

Will assets you have received in an inheritance need to be shared with your ex? The answer, as is often the case when approached by lawyers, is not a simple yes or no. 

The impact of an inheritance on a divorce settlement can vary depending on several factors, including when the inheritance was received, how it was used or treated during the marriage, and what the intention of the benefactor was when they made their will.

Is Inheritance Split in Divorce?

In Australia, the general principle is that property acquired by either spouse before or during (and even after at times) the marriage can be subject to division in the event of a divorce. 

However, an inheritance received by one spouse can sometimes be treated differently.

In some cases, an inheritance is considered to be the sole and separate property of the recipient spouse and is not automatically subject to division between the parties. This means that if you receive an inheritance before or during your marriage, it may be possible to protect it from being divided as part of the divorce settlement. 

Factors That Can Be Considered

When determining the impact of an inheritance on a divorce settlement, courts may take various factors into account, including:

When Was the Inheritance Received? 

The timing of the inheritance plays a significant role in how it is treated during a divorce settlement in Australia.

If the inheritance was received before the relationship or around the time it began, it is generally considered an initial financial contribution to the marriage or relationship. In such cases, the inheritance is unlikely to be separated from the overall asset pool upon divorce.

On the other hand, if the inheritance was received during the course of the relationship or marriage, its distribution depends on how the money was utilized and the intentions of the benefactor. For example, if the funds were used for family expenses, vacations, or improving the family home, the remaining amount will be regarded as a financial contribution by the spouse who received the inheritance.

In situations where the inheritance is received late in the relationship or after separation, it is not considered a financial contribution to the asset pool and is less likely to be factored into the divorce settlement.

What was the intention of the benefactor?

In Australia, the family court takes into account the intentions expressed by the benefactor regarding the inheritance. If it is evident that the benefactor intended the inheritance to benefit the entire family, it is likely to be regarded as part of the joint asset pool. However, if the inheritance was specifically intended to benefit the named beneficiary and was kept separate from other marital assets, it would be treated as separate from the joint asset pool. The court carefully examines the available evidence to determine the true intentions behind the inheritance before making a decision on its distribution.

What was the relationship between the benefactor and both members of the couple?

The relationship between both spouses and the benefactor is also considered. If the benefactor had a close relationship with both parties or if both spouses were involved in the care or support of the benefactor, the inheritance may be more likely to be considered part of the joint asset pool.

What is the asset pool size?

Additionally, the size of the overall asset pool compared to the size of the inheritance can effect the treatment of the property during a divorce settlement in Australia. If the asset pool, excluding the inheritance, is relatively small compared to the size of the inheritance, and the division of the asset pool without considering the inheritance would result in an inequitable outcome, the late inheritance may be included in the asset pool for distribution.

How was the inheritance treated?

How the inheritance was used or treated during the marriage can also impact its treatment in a divorce settlement. If the inheritance was commingled with joint assets or used for the benefit of both spouses or the family, it may be more difficult to argue that it should be excluded from the division of assets.

It’s important to remember that each case is unique, and the outcome will depend on the specific circumstances and the discretion of the court.

Can the value of an inheritance be offset against other assets in a divorce settlement?

Yes, it is possible to offset the value of an inheritance against other assets in a divorce settlement. For example, if one spouse receives a significant inheritance, the court may award a larger share of other marital assets to the other spouse to achieve a fair and equitable division. 

The specifics of how the value of the inheritance can be offset will depend on the circumstances of the case and the applicable laws.

If you’re looking for assistance with any king of family law issue, get in touch with us today.