Inheritances from family- how are they treated in family law property settlements?

Marriages and de facto relationships are usually long-term affairs, running into years and even decades. Throughout this time a parent or grandparent may die and pass on assets to children and siblings as an inheritance.

In many situations, an inheritance just goes into the pool of assets owned by the beneficiary and his or her partner with no disputes arising.

There are often joint loans to pay off, such as a house mortgage or a car loan. An inheritance simply expedites the paying off of such debts. This is not always the end of the story. A relationship may have seen a few decades and the partners might be getting old, but that doesn’t mean they don’t find new partners, or they may want to get out of a relationship to pursue other things.

If the relationship breaks up is mutual, and there are no hard feelings, the assets will most likely be divided down the middle. Sometimes, problems come about when the partner who was bequeathed the money wants it paid back in full when the relationship ends.

If the inheritance is received after the separation, you might be persuasive in arguing that the newly inherited assets should be left out of any claim made by your previous partner. If this happens, it may affect your entitlements when it comes to the property settlement of your combined assets.

If the inheritance is received while the relationship is current and, in particular, early on, it is most likely that the inheritance will be treated as part of the joint assets. In this case, the person who was bequeathed the inheritance often gets what is termed a percentage adjustment “contribution” which will favour them when the property settlement is assessed. Normally, that adjustment never quite matches dollar for dollar the amount of the inheritance.

Whether an inheritance makes up part of those assets that are available for the division will depend on certain factors, including:

• if the inheritance was received before any separation, the time frame may be considered;
• the value of the inheritance in relation to the value of the remaining assets;
• if the inheritance was added to joint assets  such as mortgage repayments;
• the presence of any children and their age;
• which person will be taking care of the children;
• the duration of the relationship taken from the date when  cohabitation took place up to the separation date;
• if the inheritance was received before separation and if it had been quarantined for some reason.

The above outlines some possible situations when it comes to inheritance exclusions or inclusions from a relationship’s joint assets. The final decision often rests on case law and your unique situation.

If you are getting married or you are in a new de facto relationship and you are expecting a large inheritance sometime in the future from a parent perhaps, you could consider entering into a prenuptial financial agreement with the new partner to provide protection for any possible inheritance if you happen to separate in the future. You will need a family lawyer to help you draft the agreement.