When a Relationship Breaks Down, Dividing Property Can Be Complex

Especially when one party receives an inheritance. Many people assume that an inheritance is automatically excluded from the asset pool in family law proceedings, but the reality is far more nuanced.

Is Inheritance Considered an Asset in a Divorce?

Whether an inheritance forms part of the divisible assets depends on several factors, including when it was received, whether it was used for joint expenses, and the broader contributions of each party.

Protecting Your Inheritance in a Relationship Breakdown

Henson & Marlin (No 4) [2024] FedCFamC1F 713

Take, for example, the recent case of Henson & Marlin (No 4) [2024] FedCFamC1F 713. Here, a wife sought a 40% share of the total net asset pool, arguing that her financial and non-financial contributions warranted a larger portion.

The husband, on the other hand, argued that their agreement to keep finances separate meant she had no entitlement beyond what she had personally contributed.

The court ultimately found it just and equitable to divide the property in her favour, considering her ongoing responsibilities as the primary caregiver for their children.

This case highlights how financial separation during a relationship does not necessarily prevent a court from redistributing assets if fairness requires it.

Selwood & Selwood (No 2) [2024] FedCFamC1F 700

Similarly, in Selwood & Selwood (No 2) [2024] FedCFamC1F 700, the court considered financial disparities between the parties.

The mother had established a business that significantly increased in value after separation, and the father sought a larger share of the asset pool based on indirect contributions.

The court found that despite the mother’s greater financial success post-separation, the father’s role in supporting the household and raising children during the relationship warranted an adjustment in his favour.

This principle extends to inheritances—if one party receives a large inheritance while the other has made significant sacrifices, the court may consider adjusting the property division accordingly.

Can My Spouse Claim My Inheritance in a Divorce?

Timing is critical when it comes to inheritances in family law. If an inheritance is received after separation, as in Fagan & Fagan (No 2) [2024] FedCFamC1F 791, the recipient may have a stronger case for excluding it from the asset pool.

In this case, the wife had primary care of the children and limited income, while the husband controlled most of the assets. The court ordered an additional property distribution to her, despite the husband arguing that his inheritance should be quarantined.

This shows that even post-separation inheritances can influence property settlements if one party would otherwise be left in a significantly weaker financial position.

What Happens to Inheritance After Separation in Australia?

On the other hand, if an inheritance is received during the relationship and used for joint expenses—such as paying off a mortgage, funding renovations, or covering living costs—it is more likely to be treated as part of the divisible asset pool.

Pao & Moy (No 2) [2024] FedCFamC1F 643

The case of Pao & Moy (No 2) [2024] FedCFamC1F 643 dealt with a husband misappropriating funds from a company, resulting in a judgment debt. The wife argued that her inheritance should be excluded, but because some of it had been used for marital expenses, the court factored it into the settlement.

This demonstrates why it is crucial to carefully manage an inheritance if separation appears likely.

How to Protect Inheritance in a Property Settlement

For those who receive an inheritance during or after a relationship, there are steps that can be taken to protect it. Setting up a financial agreement before or during the relationship can help clarify whether an inheritance will be excluded from property division.

Keeping the inheritance in a separate account, avoiding using it for joint expenses, and maintaining clear records of its use can also strengthen a claim for exclusion in family law proceedings.

Ultimately, there is no one-size-fits-all answer to how an inheritance will be treated in a property settlement. Courts take a holistic approach, considering contributions made by both parties and the future financial needs of each person.

At Jameson Law, we understand the importance of protecting your financial future. If you have received or expect to receive an inheritance and are going through a separation, our experienced family law team can guide you through your options and help ensure you receive a fair outcome.