As family lawyers, we are often asked whether any gift or inheritance received can be claimed by a former partner or spouse.
We will unpack what we know historically and through our experiences with clients about how inheritances are treated upon a separation, and provide some insight into these specific questions:
- Can my de facto claim my inheritance?
- Is my ex spouse entitled to my inheritance?
Before we can provide these answers, it is important to understand:
- The difference between “gifts” and “inheritances”.
- The timing of the gift or inheritance
- How the gift or inheritance has been used
We will also explore what may happen where there may be anticipated or impending inheritances on the horizon.
Is It a Gift or Inheritance?
There is usually a clear difference between property that is received as a “gift” compared with an “inheritance”. However, we have had clients in the past indicate to me that they have received an “inheritance” and when I have explored the nature of that “inheritance” it has come to light that the property has been received prior to anyone passing away (i.e. it was not received under someone’s estate). In fact, in some instances there has been no expectation that the person providing the funds was likely to pass away any time in the near future but the client has considered it an advance on their inheritance.
Therefore, even though the funds might have been “inherited” in some form or described as such, in actual fact what was being considered was, for the purposes of their legal matter, more accurately categorised as a “gift”. Normally this is an unintentional (although not always) misuse, or a nuanced difference, in terminology.
When someone receives an inheritance, it is usually clear who is receiving the property. More often than not an inheritance is provided to one of the parties to a relationship, rather than both parties, although there may also be occasions when an inheritance is intended to be received by both parties to the relationship.
It can often be more tricky to identify exactly who the gift has been provided to, as there is often a lack of documentation. This can lead to arguments as to whether the gift has been left to one party solely or them jointly.
In terms of funds, in property settlement negotiations, we also see that people argue about whether funds that have been provided as a gift or as a loan. We then have to consider what the intention was at the time those funds were provided and whether this can be established in any meaningful way. It can be difficult to get documentation to support a position. More often than not there is no paperwork and instead there were simply verbal discussions. Even then, people can often have different views about what was said.
When gifts and inheritances are added into the mix, it can make a property settlement more complex. As family lawyers we are constantly assessing and reassessing how and when property has been received, the nature of the funds / assets / property, as well as how it has been applied and the significance of those factors for our client or the other party.
Timing of a Gift or Inheritance
The Court considers many factors including whether the inheritance was acquired before, during or after the relationship came to an end.
Disputes commonly arise during the course of property settlement negotiations, about the timing and the consequential significance to the way in which the gift or inheritance should be treated. It is possible for a gift or inheritance to be received at any stage and still be considered part of the property pool.
Part of our role as lawyers is determining when these funds were received and how much weight, if any, should be given to the receipt of those funds.
Generally speaking all of the assets, liabilities and superannuation interests of each party are capable of being taken into account by the Court. The time for assessing what property should be included and the value is the date the matter is resolved (or if unresolved at the time of a final hearing), not at the date of separation.
For this reason any gifts or inheritances received after separation are capable of being taken into account by the Court. Having said that, there will then likely be consideration to the fact that the person receiving the funds has been the sole contributor to those funds and that a “two pools” approach may be adopted given there is unlikely to have been any contribution to the receipt of those funds by the other party.
In respect of gifts or inheritances received prior to or in the early stages of a relationship, particularly in longer relationships, it is likely that these funds will be treated in the same way as an initial contribution and therefore the weight to be given to that gift or inheritance may erode over time. Depending on the way that gift or inheritance was utilised it may also give rise to an argument that the funds were the springboard that effectively allowed the parties to accumulate further wealth.
How a Gift or Inheritance Has Been Used and Whether It Is Easily Identifiable
How gifts or inheritances have been applied and whether they can still be easily identified are also relevant factors. For example, it may be that those funds have never been touched and are just sitting in a bank account or in the form of investments. More often than not, people will use those funds such as to acquire property, to make improvements, to pay debts, to meet living expenses or a combination of the above.
The only problem with this is, the gift or inheritance goes ‘through the washer’ and it becomes difficult to identify where those funds are now and therefore what this means in terms of the weight that should be given to it relative to the size of the property pool. The extent of that contribution then becomes quite murky.
Can My De Facto Claim My Inheritance?
If you have been in a de facto relatIonship for more than two years, and you separate, it is likely that a property settlement will be required. So too, if you are in a relationship and have been in a relationship for less than two years and have had a child together.
In Family Law, if a couple has been in a de facto relationship, they have up to two years to finalise their property settlement from the date of separation. If one person receives an inheritance during that time period and before any property settlement is formalised, then it is possible that it could be included in the asset pool for division.
That being said, this is a discretionary area of the law. Click here to jump below and learn more.
Is My Ex Spouse Entitled to My Inheritance?
If you and your former spouse have finalised your property settlement through either Consent Orders or Court Order, then they may not be able to make a claim on any inheritance you have coming to you.
If you and your former spouse are separated, and your property settlement has not been formalised, then it is possible that any inheritance you receive may be included in the property pool for division.
A Discretionary Area
The Court may also take into consideration the intention of the person who bequeathed the inheritance.
How Are Impending Inheritances Treated?
A common question we are asked is the implications of any inheritance that a party might receive in the future and how this may impact their separation discussions. Other times we have clients who believe the other party may soon be in receipt of an inheritance and want to know how that will be treated as part of their property settlement.
The important distinction to remember is that there is a difference between and impending inheritance where someone has died and left you an inheritance and an expectation that someone may receive an inheritance if the person, typically a parent may die at some time in the future.
We need to know the size of any inheritance that is pending and the consequential impact this may have to the property pool. For instance, it might be fairly small relative to the overall property pool or it could have a substantial impact. It is also important to understand whether the receipt of those funds is imminent. That is if it is being received as part of an estate as the benefactor passed away already or whether the receipt of those funds is imminent.
Importantly, no-one should attempt to hide any gifts or inheritances. As part of the property settlement process, you have financial disclosure obligations. If someone were to not disclose an anticipated or recent gift or inheritance, there is then a risk of any Agreement that has been finalised, being set aside and the process having to start over. If someone is found to have not disclosed information, then they may be ordered to pay the costs associated with this, including paying for their former partner’s legal costs.
If there is no indication that one party is likely to receive an inheritance at the time of settlement discussions, then it is unlikely that any inheritance received after a settlement has been reached, can be clawed back or claimed by the other party. This is because the settlement agreement is intended to be final. Property settlements are also notoriously difficult to set aside.
Each property settlement matter is different and it is important to obtain early advice from an experienced family lawyer about how any inheritance you or your former partner receives, may be treated.
Phillips Family Law is an award-winning Family Law practice serving clients across Australia and abroad. Regardless of where you are in your decision-making process, we can make you aware of your options. To discuss your situation confidentially, phone (07) 3007 9898 or secure a time by filling in our confidential form here.
Disclaimer: The content in this page provides general information however it does not substitute legal advice or opinion. Information is best used in conjunction with legal advice from an experienced member of our team.