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It’s my inheritance, I got it after we broke up.

Oct 19, 2023

Carr & Co

By Ilvana Arapovic, Senior Associate

If you are going through a separation, you may have the common misconception that an inheritance received after the end of a relationship will not be included in the property pool to be divided.

Unfortunately, an inheritance received post separation does nothing more than to identify the timeline on which the inheritance was received. The value of the net asset pool is calculated at the date of trial, not the date of separation. Therefore, an asset received “post separation” does not provide a blanket rule that the asset is to be excluded.

When assessing parties’ competing claims for property settlement, the Family Court has a broad discretion to adopt either a

  1. global approach based on an overall proportion of the total assets; or
  2. Asset-by-asset approach, for example
    • one pool comprising the “relationship assets”, namely all assets and liabilities acquired by the parties with reference to their relationship, including contributions to that pool post separation; and
    • one pool comprising inherited assets.

The Court will adopt whichever approach is most convenient, subject to the circumstances of the relationship and the assets in question.

Whilst the global approach is favoured in most property settlements, the discretion by the Court to adopt an asset-by-asset approach is often adopted where the circumstances of acquisition of a particular asset, like an inheritance, is fundamentally different from the nature, form and characteristics of the other contributions over the course of the relationship.

Depending on the size of the inheritance compared to the size of the net relationship assets, the inheritance will either form part of a global pool or be property to be retained by one party to the exclusion of the other but considered in the assessment of future needs.

If the inheritance has been intermingled with other assets owned by the parties and for their joint benefit (for example cash has been applied to reduce a mortgage or renovate a jointly owned property) then the inheritance will ordinarily be included in the asset pool. That said, this does not mean that your contribution will be assessed as the same amount (or dollar for dollar) as the inheritance received or that the other party will receive an adjustment in their favour of the same amount as the inheritance.

If the inheritance has been received late in the relationship, or post separation, and has not been intermingled with joint assets in any way, the Court may rule that the receiving party can quarantine the inheritance from the pool. If this is the case, the other party may be awarded an adjustment of the joint asset pool to take this into consideration.

It is often said that, in the absence of evidence to the contrary, the party who receives the inheritance is who the inheritance was intended for. This is particularly relevant in the context of a post-separation inheritance.

This means the person who receives the inheritance will likely be assessed as having contributed entirely to the inheritance pool (if an asset-by-asset approach is adopted) or (if a global pool approach is preferred), their contributions now vastly outweigh those of the other party.  If a party was to argue that they have made contributions to the inheritance, the onus would be on that party to establish the facts to support their position.  Common examples of where the party who did not receive the inheritance may be found to have contributed to it are where:

  1. the deceased lived with the parties;
  2. both parties to the relationship provided care to the deceased; and/or
  3. the relationship pool funded expenses (such as care) for the benefit of the deceased.

If you have received or are likely to receive an inheritance during your relationship, the best protection to quarantine the asset is a binding financial agreement.  Whilst it is not the most romantic conversation to have with your partner, it is best form of asset protection available.

Given the various factors at play, it is vital to seek expert family law advice in regard to your particular circumstances. If you would like advice regarding on Family Law matters, including the treatment of inheritances and entering into a Binding Financial Agreement, please contact the team at Carr & Co via our website www.carrco.com.au or on 08 9322 8000.

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