Inheritance and Family Law – the complexities

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An inheritance received by one person in a de facto relationship or marriage is not a protected asset. This means that the assets (be it money or property) that are received by one person or the other, during the course of their relationship or marriage, do not automatically and solely belong to the recipient. Instead, such bequests can, and often will be considered joint assets. The one possible exemption to this rule is if the inheritance was received after the couple was separated but prior to a finalized dissolution of the marriage or de facto relationship.

Inheritances Received During Marriage/De Facto Relationship

That being said, there are factors the Court will take into consideration when deciding what amount or percentage of inheritance is to be distributed to the non-receiving party. The following issues will be taken under advisement;

  • The timing of the receipt of the inheritance – the early in the marriage or relationship it was received, the more likely the intended recipient will receive a larger percentage of the inheritance
  • Was the inheritance commingled with marital/relationship finances?
  • Was the inheritance meant as a gift to the marriage and partnership itself, or as an individual bequest?
  • Has the bequest been used for the general good of the marital home?
  • Was the inheritance invested in a manner that provided additional financial benefits to the family as a whole?
  • Is the inheritance still in its original form having never been commingled or used for the benefit of the family unit?

The next considerations will be evaluated based upon a full accounting of the assets available for distribution. In the event that the couple has few assets but the inheritance is substantial, more of the inheritance may be designated as marital property subject to distribution to the other spouse. The Court will require the following accountings;

  • Financial contributions to the relationship by both parties
  • Non-financial contributions to the family; i.e. parenting responsibilities, home management etc.
  • Value of retirement and superannuation accounts
  • Future needs of the parties and any resulting children

Inheritances Received During Separation

If the parties are separated at the time the inheritance is received, it is less likely that the Court will consider the inheritance as a shared asset. However, this too is considered on a case by case basis. Therefore, if you are in the midst of a separation and there is a possibility of an inheritance in the near future, it is best to finalize the process before receipt of the bequest.

Exempting an Inheritance

In the event that spouses want to enter into an agreement pertaining to future rights to inheritances, they can do so via a Financial Agreement in accordance with the Family Law Act 1975. It is highly recommended that if you and your spouse/partner want to enter into this type of agreement, you seek legal counsel. The agreement must meet very specific requirements to be valid and enforceable. Some of those requirements are;

  1. It must be in writing consistent with the Family Law Act
  2. Both parties must have been advised by an attorney prior to signing
  3. The effect of the agreement must be understood by both parties
  4. The advantages and consequences of the agreement must be fully spelled out to both parties
  5. This financial agreement can be made for various assets and their protection hence, the scope must be clearly defined
  6. An inheritance or anticipated inheritance must be specifically stated as exempt from inclusion in the marital asset pool
  7. Any financial asset can be made either fully or partially exempt from the asset pool

While inheritances are very personal family bequests, they are not automatically the sole property of a recipient who is married or in a de facto relationship. As such, it is important to seek legal guidance when faced with how to manage the future of an inheritance. Legal assistance is also imperative if an inheritance is received during the course of a separation or divorce proceedings, as it is important to fully understand how an inheritance is distributed under these particular circumstances.

If you find yourself in need of assistance with this or any other legal issue, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.

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