Can my former partner get part of my inheritance? Or – will my inheritance be protected if I divorce?
The short answer to these questions is maybe!
In typical lawyer-fashion, the longer answer is sometimes and maybe!
Unfortunately for those involved in a separation there are no hard and fast rules about whether specific assets, no matter how obtained, will form part of the assets to be divided up between the parties at the end of a relationship, unless you have a Binding Financial Agreement (BFA) in place (sometimes called a prenup) as to who gets what in the event of a break-up.
Binding Financial Agreement
If you have a BFA in place, and if the BFA deals specifically with how an inheritance is to be accounted for in the instance of there being a break down, then this is the strongest way possible to ensure that a former partner or spouse will not be able to make a claim to any inheritance that the other party may receive.
Whilst BFA’s are not 100% fool-proof they are the best way to ensure that certain assets, such as an inheritance are protected in the event of a relationship breakdown.
What if I don’t have a BFA?
If, like the vast majority of Australians who are in domestic relationships – be they marriages or de facto relationships – you don’t have a BFA the likelihood of any inheritance you might receive being completely quarantined from any claim by the other party to the relationship becomes a lot less likely.
The three courts which exercise jurisdiction in Australia as to how to divide assets upon the breakdown of a relationship in Australia, being the Family Court of Western Australia, the Family Court of Australia, and the Federal Circuit Court all have a very broad discretion as to how to interpret and implement the process set out in the Family Law Act and Family Court Act as to altering property interests upon the breakdown of a relationship.
An inheritance received during the relationship
The most important things to consider as to how an inheritance will be treated if it is received during a relationship are:
- The length of the relationship (generally the longer the relationship the more likely it is that the other party can claim).
- The timing of when the inheritance was received (generally the closer to the end of the relationship the less likely it is that the other party can claim).
- How the inheritance has been treated – was it commingled with the parties’ joint assets or was it quarantined and treated separately?
- The size of the inheritance in comparison to the assets that can be distributed.
These are the factors that should be considered when determining how an inheritance will be treated.
The position with the Family Court will almost always be that all assets of the parties should be considered as joint assets and should form part of the joint assets for division and how they were brought into the relationship will determine whether there should be a weighting in one parties’ favour or not as to the distribution of the assets. A strict quarantining of the inheritance would not be the way inheritance is usually treated by the Court.
An inheritance received after separation but before a property settlement is finalised.
It often comes as an unpleasant shock to separated parties who have not formalised a property settlement by way of Court orders or a BFA that a court is required to consider the financial circumstances of the parties at the time of making the order, and NOT at the time of separation.
Separated parties who do not formalise a property settlement promptly may be disadvantaged as it may mean that the other party becomes entitled to a financial windfall of one party, which is not necessarily limited to the receipt of an inheritance, but may also include:
- A lottery win;
- A redundancy payment; or
- An unexpected increase in share prices;
Conversely, if a party to a relationship receives an unexpected financial loss after separation but before a property settlement, that is also something that may be taken into account by a Court when assessing who should receive what is a property settlement.
Some examples of an unexpected downturn in financial circumstances might include:
- One party becoming unemployed.
- One party becoming ill or injured and being unable to work.
- A decrease in the value of assets (for example due to a stock market or real estate value decreases).
The Court will be required to consider all of these matters in a property settlement (including an inheritance received post-separation) which is often an incentive to obtaining an early property settlement if possible.
What can I do to protect an inheritance?
In all cases, the best way to protect an inheritance is to have a BFA in place before any inheritance is received.
As set out above, depending on your own particular circumstances, there may be some other options open to you to try to preserve an inheritance.
About the author: This article has been authored by Jacqueline Brown who is a Perth lawyer and director at Lynn & Brown Lawyers. Jacqui has over 20 years’ experience in legal practice and practices in family law, mediation and estate planning. Jacqui is also a Nationally Accredited Mediator and a Notary Public.
This article is written by Jacqueline Brown and was first published on Lynn & Brown.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practising lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Legally Yours Pty Ltd accepts or assumes responsibility, or has any liability, to any person in respect of this article.