Will my inheritance be included in the property settlement?
When you are separating, your assets and liabilities will be divided between the parties, referred to as a property settlement. If an inheritance is received by one of the parties, the way it is dealt with in a property settlement is dependent on the circumstances of the case. It is a common misconception that inheritances are protected from a property settlement and property division. While it is not protected, how it is dealt with depends upon factors such as the timing of receiving the inheritance, the circumstances of the relationship, and the size and impact on the asset pool.
The timing of receiving the inheritance
Before or at the start of the relationshipAn inheritance received before or at the start of the relationship will typically be considered an initial contribution to the relationship by that party. It is not likely that the inheritance will be separated from the asset pool and given back to the party receiving the inheritance upon separation. However, it will be considered a more significant contribution when determining the property division. It is important to note that in long term relationships, the effect of the inheritance at the start of the relationship is significantly diminished.
During the relationshipIf an inheritance is received during the relationship, how the couple utilised the funds or the benefactor’s intentions will determine how it is divided. For example, if it is used to benefit the family unit, to purchase a home, it will be treated as a contribution by the party who received the inheritance.
Late in the relationship/after separationThe party receiving the inheritance late in the relationship or after separation will not typically be considered a contribution to the asset pool by the receiving party. A late inheritance may be quarantined from the balance of the asset pool available for distribution, or alternatively, two asset pools may be established. An inheritance after separation but which is not yet received would generally be classified as a financial resource of that party because it will be for their benefit and use. The financial resource may remain the benefit of the receiving party, but this may impact the division of the overall asset pool between the parties.
Intentions of the benefactor
Suppose the deceased can be shown to have specific intentions for the inheritance. In that case, this may influence the treatment of the inheritance in the property pool. For example, if it was made clear that the money was for the whole family’s benefit, it is more likely that the inheritance would be determined as part of the asset pool to be divided.
If the inheritance were given to a party for a particular purpose and kept separate from the couple’s assets, it would likely be treated as an asset separate from the couple’s property pool. However, this could still be considered a resource of the beneficiary being one of the parties to the relationship. This may still result in the couple’s assets being divided in different proportions because one party has a significant asset, being the inheritance to support them.
Size of the Asset Pool
The size of the asset pool available for division could impact the way inheritance funds are dealt with in a property settlement.
For example, if the size of the asset pool is smaller than the inheritance, and the division of the asset pool (excluding the inheritance) is inequitable, a late inheritance may be included in the asset pool for distribution.
Every circumstance is different, and it is essential you obtain specific legal advice about the impacts of receiving an inheritance on your property settlement.