Inheritances after separation
A recent case in the Full Court of the Family Court of Western Australia highlights the importance of finalising your property settlement as soon as possible after separation, especially in circumstances where you may expect to receive a windfall such as an inheritance in the foreseeable future.
In the case of Calvin & McTier (2017) FLC 93-785, the parties had separated in 2010 but not finalised their property settlement by the time the husband received an inheritance from his father’s estate 4 years later.
Having been married in 2002, the parties had one child born in 2005. They separated in 2010 and the child lived with each of them equally after that. They were divorced in 2011.
In 2014 the husband received a substantial inheritance from his father and the following year the wife issued proceedings for property settlement. As this was well over 12 months following the parties’ divorce, she had to seek (and was granted) leave to file out of time.
At the time of Trial, the parties’ asset pool comprised $909,633. Whilst the father had by then spent part of the inheritance received, at the time of Trial the sum of $430,686 remained.
The husband asserted that the inheritance he had received so long after separation should be excluded from the pool of assets available for division between the parties. The wife argued that the inheritance should be included.
The Trial Judge agreed with the wife and the pool of assets was thus considered to be $1,340,319 including the inheritance. He concluded that (among other things):
- The inheritance should be included in the pool of assets;
- The husband should receive due credit for the inheritance as a contribution on his side, thus in all the circumstances of the history of their contributions the husband was credited with 75% of the contributions whilst the wife was credited with 25%; and
- The wife should receive a 10% adjustment on the basis that her future needs were greater than the husband’s (on account of her lower earning capacity).
Therefore the asset pool was divided 65% to the husband and 35% to the wife.
The husband appealed the decision to the Full Court of the Family Court of WA.
The Full Court Judgement noted that the Court undoubtedly has the power to make an order dividing property acquired after separation because of the definition of “matrimonial cause” and section 79 of the Family Law Act 1975 (Cth). The Court then considered the issue of whether the Trial Judge erred in the exercise of this discretion by including the inheritance in the parties’ asset pool.
Ultimately the Full Court decided that the Trial Judge had not erred by including the inheritance in the asset pool and had made an entirely appropriate determination of the division of assets taking into account the contributions of the husband which included the inheritance.
The Appeal was dismissed and the husband ordered to pay the wife’s costs.
While it is the case that in some matters an inheritance may be excluded from an asset pool when assessing a division of matrimonial property, this case clearly confirms that it is within the power of the Court to make orders that include any property acquired after separation and also to make orders about the division of such property.
This case also confirms however that the person who is the beneficiary of the inheritance will usually be the person who can claim that property on their side of the “contributions” ledger though the weight given to that contribution will vary in every case according to all the circumstances involved.
It is very common for clients to have questions about what will happen to an inheritance (or other windfall such as a redundancy package) if they receive it toward the end of a relationship or after separation. It is important to talk to an experienced family lawyer if you are in this situation, or think you may be in the future, as there are steps that can be taken to protect these assets as much as possible depending on your current circumstances.
But of course the best way you can protect your current and future assets is to finalise your property settlement at the earliest opportunity and prior to any inheritance or windfall taking place.
Many separated couples think they have divided their property between them satisfactorily – and often they have – but they have not taken the step of formalising their agreement in a Consent Order or Binding Financial Agreement. Without doing either of these things, both parties remain exposed to the risk of a claim against them, even years down the track, as ultimately occurred in this case.
31 October 2017