Inheritances and their treatment in Family Law

We are often asked about inheritance in the context of family law, specifically whether an inheritance is excluded from or included in the asset pool and whether a former spouse or de facto partner is entitled to the inheritance.

People may receive an inheritance, gift, or bequest of property under the Will of a person who has died, or they may be eligible to receive a distribution from an estate of a person who dies intestate (without a Will).

Considerations in the Family Law Context

Typically, Family Law property settlement negotiations will require a consideration of all assets, liabilities and superannuation in the parties’ individual or joint names or in the name of an entity in which they control, irrespective of whether the asset was owned or acquired before, during or after the relationship.

The Court has broad discretion in relation to the treatment of inheritances (that is; whether it forms part of the asset pool available for division between the parties or whether it is a financial resource for one party’s benefit) and how an inheritance is to be treated will depend on the individual circumstances of each case. The Court has provided some guidance on the factors that they will consider when applying this discretion:

• The intentions of the benefactor;
• The timing of the inheritance for example whether it was received before, during or after the marriage or de-facto relationship;
• The comparative size of the asset pool with the inheritance;
• The application of the inheritance. For example, whether the inheritance was applied to the benefit of children, property or left untouched;
• The length of the relationship and the contribution of the parties across the course of their relationship; and
• Whether the inheritance has been received or whether it is expected to be received.

Generally, the Court does not consider expected inheritances, unless a party has an entitlement under a Will and the testator has lost capacity to further amend that Will. In that event, the Court may consider whether an expected inheritance is relevant as a financial resource or as a fact or circumstance which is required to be taken into account in determining an appropriate property settlement. The relevance of an expected inheritance will however depend on the facts of the particular case.

Federal Circuit and Family Court of Australia Case Studies

The Federal Circuit and Family Court of Australia has considered a number of cases in different circumstances which involve inheritances – some of those are explored below:

1. In the matter of Bonnici & Bonnici (1992), the Full Court of the Family Court were satisfied that a “property does not fall into a protected category merely because it is an inheritance”. The Court confirmed that an inheritance received late in a marriage can be excluded from the asset pool if there are other assets which will allow for a just and equitable result, however, inheritances cannot always be ‘protected’ simply because it is inherited by one party.
2. In the matter of Elgin & Elgin [2014], the Court gave no special weight to an inheritance of $1.3 million received by a party to a marriage ten years before separation, dividing the pool equally in the context of a 40-year marriage.
3. The matter of Roverati & Roverati [2023] illustrated the importance of:

   (a) recognising the amount of a parties’ inheritance; and

   (b) the purpose with which the inheritance is applied

   In this case the parties were married for 33 years. During the relationship, Party A inherited approximately $404,000 and Party B inherited approximately $50,000. Party B applied their inheritance for the benefit of the parties’ children, whereas Party A’s inheritance was applied towards the household expenses. The Judge at first instance made orders dividing the parties’ assets on a ‘50/50’ basis on the grounds that the parties’ marriage was long and that their contributions made over the course of the marriage were relatively equal. Party A challenged the primary Judge’s treatment of the parties’ inheritances.

   The Full Court found that the primary Judge failed to recognise the significance of Party A’s inheritance, which compromised at least 30% of the asset pool and the use of Party A’s inheritance, which was for the benefit of the household. The Full Court determined that the matter should be adjusted 55% to Party A and 45% to Party B.

4. In the matter of Miller & Miller [2014], ‘Party A’ received a significant inheritance three years prior to separation, after a ten-year marriage. The inheritance represented a significant percentage of the overall asset pool available for division. Given the circumstances, the Full Court considered that it was appropriate for the inheritance to be included in the overall pool of assets, and Party A received a generous assessment based on the ‘contribution’ of the inheritance to the parties’ asset pool.
5. In the recent case of Stella & Stella [2023], the Court considered how an inheritance received from Party A’s grandmother just prior to the parties’ separation should be treated. In this matter, the grandmother had a very close relationship to both party A and B and her intention was to benefit both parties individually because of her separate bequests to each of them.

   The inheritance contribution was considered by the Court as:

   (a) Party A’s inheritance was held to be a contribution made by them, late in the marriage, without contribution by Party B; and

   (b) Party B’s inheritance was held to be a contribution made by them, late in the marriage, without contribution by the Party A.

   The Court found that it was not just and equitable to deal with the inherited assets. Each party retained their own inheritances, with the balance of the matrimonial assets simply being divided between the parties.

6. The matter of Sinclair and Sinclair involved inheritances received later in the marriage or post-separation. The Court was satisfied that “isolating or quarantining an inheritance must be cautiously done to ensure that earlier important contributions to the family, are not ignored. As will be seen by the evidence here, there is a distinct possibility of that happening if the focus is entirely on the assets received by the wife from inheritances and gifts.”
7. The matter Moritzen & Mortizen [2018] considered a ‘future inheritance’. In this matter, Party A was anticipated to receive an approximate $850,000 inheritance under their mother’s will, who was 99 years of age and was suffering of poor health. The matrimonial asset pool was found to be close to $2.3 million. The parties’ contribution-based entitlements were found to be 42% to Party B and 58% to Party A. The primary judge considered the inheritance to be “sufficiently proximate” to be considered, making a 5% adjustment to Party B based on future needs. The Court concluded that he only needed to have regard to it in a general way and did not need to consider it on a ‘mathematical analysis’. The matter was appealed however this decision was upheld.

Experienced Family Lawyer

The receipt of an inheritance can be a complex issue and parties should seek advice from experienced family lawyers early with respect to the treatment of their inheritance and their family law matter. We understand the complexities and sensitivities of inheritance issues arising in family law property settlements.

If you would like to discuss how an inheritance received by you or your partner and how such inheritance will likely to be treated in a family law property settlement, please do not hesitate to contact one of our friendly team members on 03 9070 9839.