How is an inheritance treated in a property settlement case?

The division of property at the end of a relationship is often emotional but when some of that property is from one party’s inheritance, it can become particularly contentious. The law applying to the division of inherited property is not clear cut. Some will argue it should be treated differently or excluded from the division of assets altogether.

But unfortunately the law cannot simply exclude an inherited property from the asset pool available for division. The main factors a court will consider are:

• the length of the relationship;
• when the inheritance was received;
• the amount of the inheritance;
• how the inheritance was applied;
• whether the inheritance was quarantined by the party who received it;
• the general contributions of the parties; and
• the relative financial positions of the parties.

Generally speaking, the earlier in the relationship an inheritance was received, the more likely it is that the asset will be included in the asset pool available for division as it may be argued that the other spouse has made a contribution to that asset during the relationship.

Even inheritances received at the end of a relationship or after separation may be considered by the court as property if there is not enough property in the asset pool to achieve a just and equitable settlement in respect to the other party’s future needs, or if the other party’s non-financial contributions have been significant.

Even though two cases may have similar fact situations, it can often be difficult to determine how the courts may apply the established precedents.

It is important to note that all cases are considered on their individual factual circumstances.

Generally speaking, the earlier in the relationship an inheritance was received, the more likely it is that the asset will be included in the asset pool available for division.

In the recent case of Daymond FamCAFC 212 (6 November 2014), the Full Court heard an appeal from the husband in a case where his initial contributions were 74 per cent of an asset pool worth $2.2 million. The
husband had also received a substantial inheritance late in the marriage from his mother. Despite this, the trial judge held that the contributions by both parties were equal over the course of a 21-year relationship (although there were three periods of separation spanning 10 years) with two children;
and further awarded the wife 2.5 per cent in respect to her future needs. The wife in this case was the sole carer of a child with special needs and had made significant contributions by way of home-maker and parent while the husband was frequently “at the pub”. The wife had also brought to the relationship a smaller home, which the family had made use of.

The Full Court surprisingly dismissed the husband’s appeal stating that the trial judge had taken the husband’s initial contributions, including his inheritance, into account.

The Daymond decision was in contrast to the Full Court decision of Bonnici & Bonnici
 
(1992) in which the parties’ contributions had also been assessed as equal, notwithstanding a late inheritance of the husband. In Bonnici, however, the Full Court reversed the equal contributions finding and readjusted the contributions in favour of the husband, as the court decided the money he received from his inheritance could not be brought into account because the wife could not have contributed significantly to an inheritance received
late in the relationship. A second point of contrast in the Daymond case is that the husband’s inheritance had been taken into account by the trial judge, but in the Bonnici case, the husband’s inheritance had initially not been taken into account.

For further information or advice on an inheritance and its treatment in Family Law property adjustments, please contact the Family Law experts at Streeterlaw on 8197 0105 or email advice@streeterlaw.com.au.