Upon separation, a party will often feel disgruntlement or dissatisfaction with the other party and wish to retain all they brought into the relationship. This is even more so the case with inheritances received after separation.
The treatment of inheritances in Family Law varies depending on when the inheritance was received, whether the party who didn’t receive the inheritance could be argued to have made a contribution to the receiving of it, and the size of the inheritance compared to the value of the net asset pool.
While parties sometimes argue that their inheritance should be excluded from the pool, the Courts tend to make an assessment of the inheritance as a contribution from the party to the asset pool and make an adjustment accordingly, particularly if the inheritance was received very late in the relationship or during a short relationship.
Even inheritances received post-separation are not out of the Court’s reach. In the case of Norman & Norman  FamCAFC 66, the Full Court of the Family Court held that real estate inherited by one party post-separation was an asset presently held by the party and was therefore required to be considered as part of the settlement.
This principle was re-affirmed in Holland & Holland  FamCAFC 166, where the Full Court allowed the wife’s appeal on the grounds that the trial judge had made an error at law in treating a property the husband had inherited three and a half years post-separation as a financial resource, rather than property that formed part of the asset pool available for division. The Court said that “Property acquired by one or both parties after cohabitation has ceased is not immune from the reach of s. 79”; that is, it is not immune from the Court ordering the alteration of property interests.
For clarity, a financial resource is “a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency”: Hall & Hall  HCA 23. Whether a potential source of financial support is considered a financial resource will hinge on the facts of each case and whether the potential support could reasonably be expected.
Prospective inheritances that have not yet been received by a party, following separation could, in some cases, be classified as a financial resource of the receiving party. This is because, while the inheritance isn’t currently available to that party, the benefit of the inheritance is imminent and so, that party will have the funds or assets to assist with meeting the costs of their future needs. The entitlement to an inheritance might therefore be factored in when assessing the party’s future needs.
However, the Court has held that a prospective inheritance will only be considered where it is highly likely that a party will receive the inheritance in the near future; the mere expectation of a future benefit is unlikely to have any impact on the division of assets of the relationship. The Court ultimately questions the facts and degree of significance for each case. For example, if a spouse’s parent has made a Will leaving an inheritance to that spouse and no longer has testamentary capacity, particularly where the parent is leaving a significant estate, “it would be shutting one’s eyes” to not give real consideration to the prospective inheritance in property proceedings and make a percentage adjustment accordingly.
On the other hand, if a spouse has an elderly relative who has property and the spouse is likely to benefit by way of inheritance, it would be inappropriate to consider this as relevant to a determination as to the parties’ property interests. In White & Tulloch v White (1995) FLC 92-640, the wife’s mother was a widow aged 81. She was in good health and had two children, including the wife. The husband attempted to obtain the wife’s mother’s Will to evidence a financial resource. However, the Full Court of the Family Court found that, although it seemed likely that the wife’s mother would benefit one or both of her children, she had no moral obligation to do so and could choose other people to benefit. The Full Court therefore held that the wife’s prospective inheritance was not a financial resource and could not be considered in determining a just and equitable property settlement.
In Milankov & Milankov (2002) FLC 93-095, the Full Court of the Family Court needed to consider a very different set of circumstances. In this case, the husband’s father had set up a trust with property worth $2.8 million. Although the husband’s father was 72 years old, had three other children and still had testamentary capacity, the husband’s prospective inheritance was taken into account in the property proceedings. The Full Court granted the wife a 40% adjustment increase to her portion of the property pool (at the time, worth $800,000) due to the possibility that the husband would receive $2.8 million upon his father’s death.
These cases illustrate the importance of swiftly dealing with and finalising property matters between parties following the breakdown of a relationship, prior to the expectation or receipt of any potential inheritance or other windfall.
It must be noted that the treatment of an inheritance, particularly a prospective inheritance or one received after separation, will often turn on the unique facts of a case.
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This is not legal advice.