What Happens to My Inheritance if I Divorce?

Inheritances are a significant concern for many Australians going through a divorce. Whether an inheritance is protected or forms part of the divisible asset pool depends on various factors under Australian family law. Understanding how the courts assess inheritances can help individuals anticipate potential outcomes in a property settlement.

Is an Inheritance Part of the Marital Asset Pool?
Under the Family Law Act 1975, all assets, liabilities, and financial resources must be considered in a property settlement. However, the treatment of an inheritance depends on when it was received and how it was managed.

Inheritance Received Before or During the Relationship
If an inheritance is obtained before a relationship begins or during its course, the way it is handled determines its inclusion in the asset pool. If it has been mixed with joint assets (used to purchase a home, pay off joint debts, or fund shared expenses), the Court is more likely to include it in the property division.

Inheritance Received After Separation
Inheritances received after separation but before a final property settlement may still be considered by the court. The key case of Calvin v McTier [2017] reaffirmed that post-separation inheritances could be included in the asset pool, particularly if the other party has unmet financial needs. The court maintains discretion to assess whether an inheritance should be quarantined or divided.

How Courts Assess Inheritances in Property Settlements
Australian family courts take a holistic approach when determining the division of assets. While an inheritance may be viewed as a direct contribution by one party, it is not automatically excluded from consideration. Factors influencing the court’s decision include:

The timing of the inheritance (before, during, or after the relationship)
How the inheritance was used (e.g., whether it was mixed with joint assets)
The length of the relationship
Financial and non-financial contributions of both parties
Future needs of each party, including care of children

Case Law and Precedents
Several legal precedents highlight the complexity of inheritances in family law cases:

Bishop v Bishop [2013]: The Full Court, during appeal proceedings, upheld the trial judge’s decision that the wife’s $250,000 inheritance, received a year before the couple’s separation, should be excluded from the divisible property pool. Since the inheritance funds were held in a trust and never combined with joint assets or any asset belonging to the husband, they remained distinct and could be effectively quarantined from the rest of the assets.
Calvin v McTier [2017]: A post-separation inheritance received by the Husband four years after separation was included in the asset pool, although the Court assessed the Husband’s post separation contributions to be substantially higher than the Wife’s.
Holland & Holland [2017]: A late-stage inheritance was excluded at Hearing, and treated it as a financial resource. On appeal, the Full Court ruled that entirely excluding an asset from consideration in the property division is incorrect as a matter of principle. However, the Court acknowledged that in some cases, it may be appropriate to treat certain assets separately, particularly when the parties have differing interests in those assets or have contributed to them in different ways.

Key Considerations for Protecting an Inheritance
Although inheritances are often treated as contributions by the recipient, their protection depends on how they are handled. The courts will assess whether an inheritance has been preserved separately or integrated into the couple’s financial structure. This assessment influences whether an inheritance is divided or remains the property of the beneficiary.

Why Legal Advice is Essential
The treatment of inheritances in divorce proceedings varies based on individual circumstances. South Coast Family Law Group has extensive experience in complex property settlements, ensuring our clients receive tailored guidance based on the latest legal precedents. If you are concerned about the impact of inheritance on your property settlement, contact our team today for expert advice.

For personalised legal support, contact us today or call on (02) 4202 6644 to schedule a consultation.