Can my ex claim my inheritance after divorce?

A common concern for clients is how their inheritance will be treated in a family law property settlement – “Can my ex claim my inheritance after divorce?”

This will depend upon the particular facts of each case, including when the inheritance was received or is expected to be received, and how the funds have been applied.

However, in short, the answer is ‘quite possibly’.

Do I have to disclose an inheritance in a divorce?

Yes, you must disclose an inheritance. Rule 6.06 of the Family Law Rules requires separated parties to disclose their total direct and indirect financial circumstances including all sources of earnings, interest, income, property (vested or contingent interests) and other financial resources. This includes any inheritance received, or which will shortly be received.

Failing to disclose an inheritance as part of property settlement negotiations could actually put your inheritance at stake. This is because one of the grounds on which final property orders can be overturned is if it is found that a party failed to disclose assets.

Prospective inheritances

If a party expects to receive an inheritance in future from somebody in the future, this type of ‘prospective inheritance’ is not generally relevant to the issue of property settlement. This is because the person making the bequest may change their Will at any time, so there is no guarantee that an inheritance will actually be received.

Conversely, if a party is set to receive an inheritance from a person who is not of sound mind and has lost ‘testamentary capacity’ (i.e. the capacity to change their Will) this type of prospective or expected inheritance may be relevant to the issue of property settlement.

Although an expectation of an inheritance it is not an asset, it may be considered a financial resource and may have a bearing on any property settlement. However, there is no absolute rule that a prospective inheritance must be taken into account as a financial resource.

If a party is due to receive a significant, guaranteed inheritance at the time court proceedings are occurring, the other party may be able to seek an adjournment (pause) of the proceedings.

This is because the beneficiary will shortly have a significant change in financial circumstances, and likely receive further assets, which may be highly relevant to the consideration of how the assets should be divided between spouses.

Inheritances received during the marriage or relationship

Inheritances received during the relationship are considered ‘property’. However, an inheritance will not automatically be included in the asset pool to be divided between spouses. Whether the inheritance is included in the asset pool may depend on when the inheritance is received, if it has actually been received, and if it remains intact.

An inheritance received during the relationship and used to acquire property is included in the asset pool in the form of that property. The party who received the inheritance will be considered to have made a financial contribution towards the assets available for division between spouses (see our article on how assets are split in a divorce which explains ‘contributions’).

The weight given to this contribution (i.e. how much of a difference it makes to the overall entitlement of the party who received the inheritance) can depend upon the size of the inheritance, when it was received, and how the funds were applied.

In some cases, a large inheritance received late in a relationship may be excluded from the calculation of the asset pool and retained intact by the party who received it. A significant inheritance received late in the relationship is likely to be seen as being a significant financial contribution made by the party who received the inheritance therefore warranting an adjustment of assets in their favour.

Inheritances received after divorce

A highly contentious issue that often arises is whether an inheritance received after separation (but before a property settlement is finalised) should be included in the pool of assets to be divided between spouses.

This leads us to the original question…

Can my ex-spouse claim my inheritance after divorce?

It is a com­mon mis­con­cep­tion that an inher­i­tance received after sep­a­ra­tion will be excluded or “quarantined” from the prop­er­ty pool to be divid­ed between the parties. Although it has been successfully argued that an inheritance received after separation should be in some way “quarantined” from the asset pool and retained intact by the recipient, there is no guarantee this will occur.

The Court has a wide discretion when determining whether to include an inheritance received by one party after separation in the asset pool. The width of the court’s discretion was reaffirmed in the 2017 case of Calvin & McTier.

In that case, the parties were married for eight years. They had one child together, who was around five years old at separation. Four years after the parties separated, the husband received an inheritance of $430,686 from his father.

The trial magistrate considered the contributions of both parties and determined that the husband’s inheritance should be included in the asset pool available for division between the husband and wife. The net value of the asset pool was $1,340,319 and, as such, the husband’s inheritance represented 32% of the asset pool.

The magistrate found that:

• the husband brought significantly more property into the relationship than the wife but did not value the husband’s initial contributions. His Honour found the initial financial contributions of the husband “far outweighed” those of the wife;
• the parties’ contributions made during the marriage were equal; and
• the husband’s post-separation contributions (including his inheritance) were “overwhelming”.

The magistrate assessed the husband’s total contributions at 75% and the wife’s total contributions at 25%. The wife then received a 10% adjustment because of her having a lower income earning capacity than the husband. This meant that the husband received 65% of the asset pool and the wife received 35% of the total pool (which included the inheritance).

The husband subsequently appealed. The full court dismissed his appeal, with the husband ordered to pay the wife’s costs of the appeal.

Calvin & McTier serves as a reminder that it’s important to seek specialist legal advice as early in the separation process as possible and to formalise a property settlement to gain certainty and protection of final orders.

Although the inheritance was included in the asset pool in that case, this will not always occur as each case will have individual facts and circumstances which must be considered. As mentioned at the outset, in other cases, post separation inheritances have been effectively excluded from the asset pool.

If you would like to speak to a Wollongong Family Lawyer or Shoalhaven Family Lawyer about your family law issues, please contact us to arrange an obligation-free initial consultation in-person, by telephone, or online via zoom.