Inheritance received during a relationship

Inheritance received during a relationship? Find out how family law may treat it

An inheritance received during a relationship can often become a major issue in reaching a family law property settlement.

An inheritance received by one party to the relationship may be treated as a contribution made by that party.

Any assets or cash received as an inheritance may however instead be quarantined (or separated) from other assets to be divided between the parties and treated as available only to the party who received the inheritance. If this is the approach taken, it may still be taken into account that that party has those quarantined assets or cash when considering any adjustments to be made in the property settlement in favour of the other party.

Contact our family lawyers Brisbane and our family lawyers Brisbane Northside for advice about any inheritance received or other property settlement issues or parenting issues. We aim to assist our clients to reach agreement with their former partner without going to Court. If however court action is necessary, we are ready to represent you effectively at Court.

Just how an inheritance received by a party will be treated in a family law property settlement will depend upon the facts of the case and the circumstances of the inheritance.

This point was emphasised in the case of Bishop & Bishop where the Full Court agreed in appeal proceedings that the trial judge was correct in finding that the sum of $250,000 being the wife’s inheritance received a year prior to the parties separation should be excluded from the property pool to be divided. The inheritance monies had been placed in a trust and were never mixed with any joint asset or asset of the husband. This meant that it could easily be separated from all of the other assets and effectively quarantined.

When an inheritance is quarantined like this, it is not taken into account as part of the asset pool to be divided between parties. However, it may still be taken into account to determine what each party should receive from that asset pool. The fact that one of the parties may have an inheritance received and available to them may be a reason to allow the other party an adjustment in their favour from the asset pool that does not include the inheritance.

That other party may then get some percentage increase interest in the asset pool that does not include the inheritance to take into account that the first party has the inheritance assets available to them.

However, there may be other adjustments that need to be made that will affect the final outcome in a property settlement. By way of example, what happens if our hypothetical wife who has an inheritance of $250,000 which is easily quarantined also has primary care of very young children, limited employment prospects, a very modest income compared to her husband who has a significant income and limited weekend time with the children? In this situation, the husband may not receive any increased percentage of the property pool to offset the wife’s inheritance.

The case of Peabody & Peabody saw the court taking a similar approach to Bishop. In Peabody the inheritance received by the husband was $750,000 and was received some 3 years after separating from the wife. The wife had made no contribution to that money. It was therefore quarantined from the property pool which was to be divided and treated as a financial resource available to the husband.

In the case of Nikas & Anthis , the inheritance received was an asset instead of a cash sum. The  husband and wife had lived in the wife’s mother’s house for 11.5 years rent free and the wife eventually inherited the house from her mother. The court treated the house as a contribution by the wife, as the husband had made minimal contribution to the property.

These cases can be contrasted with Elgin & Elgin where it was found that a $1.3 million inheritance received 10 years before separation where there had been a marriage of 40 years had no special weight and the property pool worth some $44 million was divided equally.

There is no one rule which says that any inheritance received during a relationship should be quarantined and excluded from the property pool to be divided. Before determining how an inheritance should be treated it is important to assess all the facts of your matter.

The information set out in this blog is not a substitute for legal advice. We recommend that you obtain advice tailored to your particular circumstances from LGM family lawyers Brisbane.