Inheritances and family law property settlements

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Uncertainty relating to how inherited assets will be treated in property settlement proceedings under the Family Law Act is a cause for much anxiety.  Emotional attachment to a family farm or a home that has been “in the family” for generations is often a powerful element in settlement negotiations.

Unfortunately there are no simple answers.  Inheritances are not a protected species quarantined from a potential adjustment in favour of the other party.  An order can be made in relation to inherited property, but how a Court will treat it will depend on the length of the relationship, the timing of the inheritance, how it was applied to the benefit of the family, what contributions were made for its upkeep or development and probably most of all, its significance in the overall asset pool.

If the inheritance came in late, or even after separation, then that alone minimizes the chances of the other party being able to claim to have made any contribution to it.  In such cases there is a greater probability that the inheritance will be kept out of the divisible asset pool.  That is not the same as being “ignored”.  It has to be taken into account under Section 75 of the Family Law Act when the Court decides whether any further adjustment should be made in addition to the assessment of respective contributions.

Assuming that there are sufficient other assets out of which a “just and equitable” order can be made, late inheritance will usually be treated as an entitlement of the recipient.

Much of our jurisprudence is based on a matrix of exceptions, and that is equally true of these cases.

For example, if both parties lived and worked on a property owned by a parent of one of the parties through a significant part of the relationship on the expectation that it would be inherited, the other party will often be seen to have made direct and indirect contributions by way of home-making, caring for children or maintaining that property either physically or by application of a couple’s financial resources.  This may be particularly so where the parties lived in privation, or eschewed opportunities to take up other employment or development of careers or accrual of superannuation.

At core is the question of contribution.  An inherited property can be seen as a party’s sole contribution, but where there has been a history of working on a property, or improving it, the Court will endeavor to assess the parties’ relative contributions to the value of it.  That does not mean that such relative contributions will be seen as equal.  In such cases above, the date of inheritance is not of critical importance.  The actual inheritance can come after separation, but the other party’s contribution will still have to be recognized.

In some cases, the inheritance may be only an expectation, and the parent may still be alive when proceedings are commenced.  If so, the other party may seek an adjournment under Section 79(5) of the Family Law Act so that the inheritance may fall into possession and therefore become “property” within the meaning of Section 79.

There may also be cases where there are sufficient other items of “property” that will enable a Court to make a “just and equitable” order after taking into account the imminence of an inheritance.

Therefore, an order can be made for a payment to the other party of a sum that will be based at least in part on the value of the inherited property.

If the inheritance consists of a fund, shares or investment properties, then the use and application of those funds, shares or investments may determine how much credit should be allowed to the beneficiary.  If the separated couple continued to struggle with high instalments on their home mortgage, which could have been alleviated by applying some of the inheritance, then the other party will be seen as having made an indirect financial contribution by allowing the beneficiary to preserve or allow the inheritance to grow while their household income was committed to the mortgage payments.

This would be also true where household income was applied to paying rates, utilities and costs of ownership associated with the inherited property.

The significance of a contribution through inheritance is determined by the usual approach of “weight to be given in the light of all contributions”.  In a long relationship, if there is no other property, contributions could well be seen as equal or close to equal, even where the inheritance was late.  This is because the “myriad” of contributions made through parenting, home-making, caring and releasing the primary breadwinner to continue earning an income, must all be taken into account, not mathematically in an accounting way, but holistically.

Expectations of future inheritance, where time of receipt is still remote, present their own special problems.  Such future events may still be shown to be relevant in some cases but only as Section 75 considerations.

This can give rise to perceptions of unfairness, particularly where one party has received a substantial inheritance from the estate of a deceased parent during the relationship, or at least prior to trial, and which may therefore be included in the divisible asset pool but the other party is yet to receive his or her inheritance at an indeterminate future.

Unless the relevant relative is in such poor health that he or she cannot change the last Will, the future inheritance will never form part of the asset pool but can be taken into account under Section 75 of the Family Law Act.  The exception is where the other party satisfies the Court that he or she has made a significant contribution to that relative’s property or welfare.

If you are considering a property settlement and have questions about the impact of an inheritance, you should speak to a family lawyer.  Our team specialise in family law property settlements and can provide you with individual and specific advice relevant to your situation.

Lois Clifford is a partner at Dobinson Davey Clifford Simpson located at 18 Kendall Lane, New Acton, Canberra ACT 2601 and can be contacted on (02) 6212 7600.