In family law, there are always mixed feelings involved, be it tears or cheers, when it comes to inheritance from the estate of a family relative. The court sees an inheritance coming in after separation continue to be relevant as long as the parties have not yet finalised their property settlement. Therefore, an unexpected inheritance will eventually become a new battlefield in the prolonged crossfire over money.

Sections 79 and 75(2) of the Family Law Act 1975 (FLA) set out the general principles a court considers when deciding financial disputes after a marriage or de facto relationship breakdown. These principles include looking at direct financial contributions by each party, such as earnings, and indirect financial contributions such as gifts and inheritances. One can never draw a line in the sand when it comes to property division in the Family Court. Each case is unique in its own way, based on particular facts.

However, that does not mean the other party is automatically entitled to part of the inheritance (although sometimes that can be the case). On the contrary, it does not mean the inheritance is completely out of sight or "quarantined" from the other side. An inheritance received after separation will be dealt with in one of two ways: it can be included in the pool for consideration when dividing the assets or considered as a financial resource, which the Court would make adjustments accordingly to make the order “just and equitable” under section 79(2) of the FLA.

But what if an inheritance, possibly after a considerable time, is received after separation? 

In Calvin & McTier (2017), the Full Court of the Family Court of Western Australia considered this question and answered in the affirmative — it should be included in the asset pool to be divided. Contemporarily, in the New South Wales case of Holland & Holland (2017), the inheritance was not included in the pool in the first place, but later the trial judge’s decision was appealed in the Full Court of Family Court.

The cases

In Calvin, four years after separation and three and a half years after the divorce, the former husband received a large inheritance. As there had been no formal financial settlement, the wife was granted leave to file a property settlement claim under s 44(3) of the FLA. The couple had been together for eight years and had one child who was equally cared for by them both. The husband had brought more assets to the relationship, with contributions assessed as a 75/25 percent split in his favour. The trial judge considered the asset pool to include the inheritance (which represented 32% of the total pool). The husband appealed the inclusion of the inheritance in the asset pool on the grounds that the inheritance was received well after separation and there was no connection between the inheritance and the matrimonial relationship. His argument was unsuccessful. It is not being considered as a requirement that an inheritance, received post-separation, should be treated differently from other property subject to the discretion of the Court.

The Full Court of the Family Court rejected the appeal and held that it was within the wide discretion of the trial judge to include any assets acquired after separation in the undefined assets to be considered for division. 

Whether the inheritance was included in the asset pool to be divided or dealt with separately was up to the trial judge to decide, based on the relevant factors, including:

• The duration of the marriage;

• The inherited assets' value in relation to the net value of the other assets;

• Time elapsed between separation and inheritance receipt (in real terms and relative to the length of  the marriage);

• The nature of the relationship between the deceased and the non-inheriting spouse; and

• Any direct or indirect contributions made by the non-inheriting spouse to the deceased or the      inherited property.

In Holland, the married couple lived together for 17 years before separating in 2007. In late 2011, nearly five years after the separation, the husband received a relatively substantial inheritance from his late brother to the value of $715,000. At the hearing, the judge ruled that the inheritance should be concluded as a financial resource of the husband. However, the wife appealed on the ground that the inheritance should be part of the asset pool of the parties. The appeal was successful, and the Full Court of the Family Court decided that the trial judge was incorrect to deem the inheritance as a financial resource of the husband only.

In delivering its judgment, the Full Court said: "In our view, it is wrong as a matter of principle to refer to any existing legal or equitable interests in property of the parties or either of them as ‘excluded' or ‘immune' from consideration in applications for orders pursuant to s79." In coming to this decision, the Full Court approved Calvin & McTier.

Insight

In family law disputes, it is a common misconception that property or financial benefit obtained after separation will be excluded from the property pool to be divided between the parties. Any property acquired after separation but before settlement or the final property hearing, can be potentially treated as the property of the parties by the Court, at its discretion, determining what is a "just and equitable" division based on all the circumstances. 

The cases above arguably suggest an urge to finalise property matters promptly once the couple have passed the point of no return. Preferably, if you are the one in the relationship for whom there is a foreseeable chance of receiving a large inheritance, you should seek legal advice and aim to formalise your property settlement as soon as possible.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*

Calvin v McTier [2017] FAMCA 125

Holland & Holland [2017] FamCACF 166