Often one or both parties may receive an inheritance during the course of their relationship, or shortly after separation. This article discusses how those monies may be treated for the purposes of Family Law property settlement, and whether the non-receiving party may be entitled to a portion of those funds.
Where an inheritance is received during the relationship, those monies are often put towards purchasing or maintaining other assets of the parties, thereby being absorbed into the overall shared property pool. Where this occurs, it is difficult to argue that the inheritance ought to be treated as a separate asset isolated from the rest of the property pool, and most often it forms part of the greater pool for division. That is not to say that the receiving party is not granted some benefit or acknowledgment for having introduced the monies into the property pool. The inheritance is usually categorised as a contribution to the property pool, made by the receiving party. Depending on the value of the inheritance, when it was received and how it was used, the receiving party may receive a percentage adjustment in their favour in recognition of contributing the inheritance to, and thereby increasing the property pool.
Conversely, where an inheritance is received shortly prior to or after separation and the funds have not been absorbed into the property pool, the Court may be more willing to exclude the inheritance from the shared property pool for division (it may form part of a separate pool) or have the contribution be considered dollar for dollar.
Notwithstanding the above, there is no blanket rule to apply when determining how an inheritance may be treated by the Court as part of a property settlement. This is highlighted in the recent decision of Peat & Northup (No 2)  FAMCA 1123. The parties married in 2008 and separated in 2016 following 11 years of cohabitation. There were two children of the marriage, aged 10 and 13 at the time of the trial. The husband’s mother passed away a few days after the parties’ separation, following which the husband received an inheritance totalling $851,387. The net property pool for division was $1,068,455, of which $851,387 was the husband’s inheritance. In dispute was the weight to be attributed to the husband’s inheritance as a contribution (neither party submitted that the inheritance ought to be isolated from the matrimonial property pool for division).
The Court found that the contributions of the parties should be reflected by an apportionment as to 70 per cent to the husband and 30 per cent to the wife. The Court added that the husband’s inheritance was considered as part of his contributions made to the pool, in the same way that the wife’s contributions as primary caregiver to the children post-separation formed part of her contributions.
In considering future needs factors, the Court found that the wife’s income was $63,000 per year and the husband’s income was in excess of $180,000 per year, where the wife would retain primary care of the children. Accordingly, a 20 percent adjustment was made in favour of the wife, resulting overall in an equal 50 / 50 division of the net property pool.
It is important to remember that the mere expectation of an inheritance will not impact the division of the property pool – the inheritance must have already been received, or is to be received imminently (ie. a testator may be terminally ill and no longer have capacity to change their will, thereby leaving an inheritance to one of the parties in the immediate future).