When facing a divorce, one of the most common concerns is how an inheritance and divorce might be treated in a property settlement.
Understanding how inheritance and divorce intersect under Australian family law can help you better protect your financial interests.
Whether you’ve received an inheritance before, during, or after your relationship, there are key factors that determine how it may be divided.
How Is Inheritance Treated in a Divorce Settlement?
In Australia, inheritance is not automatically excluded from the asset pool in a divorce settlement.
Instead, the Family Court assesses each case individually. Factors such as the timing of the inheritance, how it was used, and the financial contributions of both parties can influence the outcome.
For example, if you received an inheritance before the relationship began or shortly after separating, there’s a higher chance it may be treated as your personal asset.
However, if the inheritance was received during the relationship and used to improve shared property or family expenses, it may be considered part of the marital asset pool.
Key Takeaway: The timing and use of your inheritance will play a major role in determining whether it is included in the property settlement.
Timing of the Inheritance and Divorce and Its Impact
The timing of when you received your inheritance significantly affects how it’s treated during divorce proceedings.
- Before the Relationship: An inheritance received before your relationship began is often seen as an initial contribution. While this strengthens your claim over that asset, it may still be adjusted depending on your partner’s contributions throughout the relationship.
- During the Relationship: If you receive an inheritance while you are together and use it for mutual benefit — for example, to renovate your family home — it is more likely to be included in the asset pool.
- After Separation: Inheritance received post-separation is generally treated as separate property, but exceptions may arise if there are ongoing financial needs, particularly for children.
Key Takeaway: The closer the inheritance is tied to the relationship’s finances, the more likely it is to become part of the asset pool.
How the Inheritance Was Used
The way your inheritance is spent or invested can influence its treatment in divorce proceedings.
- Kept Separate: If you kept your inheritance in a separate account and avoided blending it with shared assets, you may have a stronger case to exclude it from the asset pool.
- Used for Shared Expenses: If your inheritance was used to improve joint assets, such as buying property or paying down family debt, it’s more likely to be considered part of the shared pool.
- Invested in Individual Assets: An inheritance spent on personal assets like a car or investments in your name may be treated as your sole property.
Key Takeaway: Keeping your inheritance separate from joint finances can improve your chances of retaining it in the settlement.
Future Needs and Inheritance
Even if your inheritance is considered separate property, the court may still adjust the asset division if your former partner demonstrates greater financial need.
For example, if one parent has primary custody of the children or faces limited earning potential, the court may adjust the settlement to ensure fairness.
Key Takeaway: The court’s priority is ensuring both parties’ financial stability, which may influence how your inheritance is handled.
Steps to Protect Your Inheritance
If you want to safeguard your inheritance in the event of a divorce, consider taking proactive steps such as:
- Creating a Binding Financial Agreement (BFA): Also known as a prenup, this legal document can outline how your inheritance will be treated in the event of a separation.
- Maintaining Separate Accounts: Keeping your inheritance in a distinct account rather than merging it with shared finances may strengthen your claim.
- Documenting Contributions: Keeping detailed records of how your inheritance was used can help clarify its purpose and protect your interests.
Navigating inheritance and divorce in Australia can be complex, but understanding how family law assesses inheritances can help you make informed decisions.
By keeping records, maintaining separate accounts, and considering legal agreements, you can improve your chances of protecting your inheritance.
Director of Melbourne Family Lawyers, Hayder manages the practice and oversees the running of all of the files in the practice. Hayder has an astute eye for case strategy and running particularly complex matters in the family law system.
