What happens to your inheritance in the event of a separation?

Posted on Nov 28, 2016 by Samantha Miller   |   Categories: Family Law, Wills & Estates

Often clients are concerned that they have received an inheritance during their relationship and that they will ‘lose it’ upon the breakdown of that relationship.

Whilst this does sometimes happen it is not always the case.  There are a number of factors considered by the courts when deciding how the assets of a marriage should be distributed.

A lot will turn on when the inheritance was received.  If it was relatively early in a long relationship then it’s almost certain to have been subsumed within the pool of matrimonial assets (‘the pool’).  It will still have relevance in terms of being considered as a contribution to the marriage by that party but this will not be on a dollar for dollar basis.  If however, the inheritance was received very close to separation, or even post-separation, then it may be effectively argued that it doesn’t fall within the pool.  It most likely won’t be disregarded entirely as it will be a resource to which that party has access.  For example, it may be argued that because one party has the inheritance, the needs which they may otherwise have had, can be met by that inheritance as opposed to being provided for from the pool.

The degree to which an inheritance is included in the division of assets rests on a number of other factors including:-

  1. The relative size of the inheritance in comparison to the entire matrimonial pool;
  2. How the inheritance was distributed eg was it used to pay off a joint mortgage or deposited in to an account in one party’s sole name;
  3. Are there children of the marriage and if so, how old?
  4. Who has the ongoing care of the children; and
  5. The length of the relationship.

As with all family law matters each case is different and will be decided based upon the facts unique to it.

If you are in a relationship, or contemplating one, and you expect to receive significant inheritances at some point then you may wish to consider ways in which you can protect these in the event of a breakdown of the relationship.  This can be done in a number of ways including a Binding Financial Agreement which can be entered into at any time before, during or even after a relationship.  It can deal with all financial aspects of a relationship or be limited to single issues.

Alternatively, you may want to speak to your parents (or the person you expect to inherit from) as to how their will is set up.  They may be able to provide protection against dissipation as a result of your relationship breakdown through the use of a Testamentary Trust.  In effect this provides that the assets you will inherit will form part of a Trust and therefore they cannot be taken out of the Trust without the Trustee agreeing to distribute them to the beneficiaries.  None of the assets are legally owned by the beneficiaries, which may protect the assets to some extent upon a relationship breakdown.  The Family Court does not usually class assets held in a Testamentary Trust as assets of the beneficiary but as a financial resource of the beneficiary.  Generally this means the beneficiary may receive less of the marital assets but will retain all of the inheritance held in the Testamentary Trust.