When couples separate, they typically need to sort out how to divide their property.

When couples separate or divorce they typically need to sort out how to divide their property.  This includes both assets and debts.  There are a number of ways this can be done.  Parties can agree on how to divide their property without any court involvement. 

These kinds of agreements can be formalised by the court by applying for a consent order, but they do not have to be.  Where parties cannot agree on their own, it is possible to apply to the court for a financial order.  Financial orders can relate to the division of property and the payment of spousal maintenance.

It can often be difficult for parties to reach agreement with respect to inheritances received during the relationship, particularly where the inheritance is substantial.

Where a case goes to court, the court begins by determining what the assets and debts of the parties are.  The court then considers what direct financial contributions each person made, such as employment earnings.  The court also examines indirect financial contributions including inheritances and gifts.  Non-financial contributions such as child care responsibilities and homemaking are also taken into account.  The court will look at each person’s future requirements having regard to factors such as age, health, financial resources, ability to earn an income and child care responsibilities before making a financial order.

In a court application for property settlement, it is fairly common for one person to claim contributions based upon gifts and inheritances they have received.  The way courts treat inheritances differs significantly between cases and each case is decided on its own facts.

There are a number of broad principles that will be considered by a court when determining how an inheritance should be treated.  Property is not protected simply because one party inherited it.  The court will look at when the inheritance was received and the stage of the relationship at the time of the inheritance.  Generally where an inheritance is received very late in the relationship or after separation, the court will treat it as a contribution made by the spouse who received it, but this is not always the case.  The size of the inheritance and the total asset pool are also relevant.

Where there are no substantial assets but the inheritance, it is more likely that a court will make an order for a property settlement from the inheritance, even if the inheritance was received after the date of separation.  This is even more likely to be the case where the person who did not receive the inheritance made significant financial or non-financial contributions to the relationship (for example, by supporting the family financially or by acting as a homemaker or parent).

In situations where there are ample funds from which an appropriate property settlement can be made, a recent inheritance will ordinarily be treated as an entitlement of the person who received it.  In these cases it will be rare for the other party to receive a significant benefit from the inheritance.

Courts do not apply a strict formula when dealing with inheritances or when dividing property.  Courts have a lot of discretion to determine the extent to which a party will get to keep their inheritance when a relationship breaks down.