When a marriage or de facto relationship ends, one of the biggest concerns is how assets are divided. A common question is: Is an inheritance considered an asset in Australian divorce law?
The short answer is yes—an inheritance can be considered an asset in family law proceedings.
However, whether it forms part of the property pool for division depends on several factors, including when the inheritance was received, how it was used, and the financial needs of both parties.
While inheritances are often seen as personal gifts, Australian family courts take a broader approach, ensuring fairness based on contributions and future needs.
Let’s break down what this means and how the law applies to different situations.
Is an Inheritance Included in the Asset Pool During a Divorce in Australia?
Australian family law does not automatically exclude an inheritance from the property settlement process. The Family Law Act 1975 requires all assets and liabilities of both spouses to be identified and valued.
This includes:
- Joint assets (such as the family home or shared bank accounts)
- Individual assets (such as personal savings, investments, and superannuation)
- Liabilities (such as mortgages, loans, and credit card debts)
- Gifts and inheritances received before or during the relationship
Whether an inheritance is included in the asset pool for division depends on:
- When the Inheritance Was Received: Was it before or after separation?
- How the Inheritance Was Used: Was it kept separate or used for shared expenses?
- The Financial Circumstances of Both Spouses: Would excluding the inheritance result in unfair hardship?
If an inheritance was received before or during the relationship, it may be treated as a financial contribution to the marriage.
If received after separation, it is more likely to be considered separate property but can still impact the overall settlement.
Can My Spouse Claim a Share of My Inheritance in a Property Settlement?
Yes, but not always. Whether your spouse can claim a portion of your inheritance depends on:
- How the Inheritance Was Used: If it was mixed with shared funds (e.g., used to pay off a mortgage), it may be considered a contribution to the marriage.
- The Length of the Relationship: In long-term marriages, courts are more likely to consider inheritances as part of the shared asset pool.
- The Financial Needs of Both Parties: If one spouse has significantly lower financial resources, the court may adjust the division to provide fair support.
For example, if a wife inherits $100,000 and uses it to renovate the family home, the husband may argue that the inheritance contributed to a joint asset.
On the other hand, if the inheritance was kept in a separate account and not used for shared expenses, it may remain with the recipient.
It’s important to note that even if an inheritance is not directly divided, the court may adjust the overall property settlement to ensure both parties receive a fair outcome.
Does the Timing of Receiving an Inheritance Affect Its Treatment in a Divorce?
Yes, the timing of when an inheritance is received plays a crucial role in whether it is included in the asset pool.
Inheritance Received Before or Early in the Relationship
- Often treated as a financial contribution made by the recipient spouse.
- If used to acquire or improve shared assets (e.g., buying a home), it may be considered a joint asset.
Inheritance Received During the Relationship
- If used for shared expenses or investments, it will likely be included in the property pool.
- If kept separate, the court may still consider it when assessing each party’s financial position.
Inheritance Received After Separation
Generally, inheritances received after separation are not included in the property pool.
However, courts may consider future inheritances if they are substantial and significantly impact financial circumstances.
While there are no strict rules, Australian family courts aim to achieve a fair and just outcome based on contributions and future needs.
How Can I Protect My Inheritance from Being Divided in a Divorce?
If you want to protect your inheritance from becoming part of a property settlement, consider these legal strategies:
1. Keep the Inheritance Separate
- Do not mix it with joint accounts or use it for shared expenses.
- Keep it in a separate bank account under your name.
2. Enter a Binding Financial Agreement (BFA)
- A prenuptial agreement (before marriage) or postnuptial agreement (during marriage) can specify that inheritances remain separate.
- Both parties must obtain independent legal advice for the agreement to be enforceable.
3. Use a Testamentary Trust
- A trust can hold inherited assets separately from marital assets.
- This prevents the inheritance from being automatically included in a divorce settlement.
4. Seek Legal Advice Early
- A family lawyer can help structure your financial affairs to minimise risk.
- Legal advice is essential, especially for complex asset protection strategies.
By taking these precautions, you can better safeguard your inheritance from being divided in a property settlement.
What Factors Do Australian Courts Consider When Deciding on Inheritance Division?
When a court decides whether an inheritance should be included in a divorce settlement, it considers:
The Contributions of Both Spouses
- Was the inheritance a significant financial contribution to the marriage?
- Did both parties contribute to increasing its value (e.g., improving an inherited home)?
The Financial Needs of Each Party
- Does one spouse have a lower income or greater financial needs (e.g., caring for children)?
- Will excluding the inheritance result in financial hardship?
The Length of the Marriage or Relationship
- In short marriages, courts may allow the recipient to keep the inheritance.
- In long marriages, inheritances are more likely to be shared as part of contributions over time.
When the Inheritance Was Received
- If received early, it is more likely to be part of the property pool.
- If received after separation, it may be considered separate property.
Any Existing Financial Agreements
If a Binding Financial Agreement (BFA) exists, the court will generally uphold it.
Each case is unique, and courts strive to achieve fairness based on individual circumstances.
Preserving Your Inheritance: What You Should Do Next
Divorce settlements can be complex, and inheritance disputes add another layer of legal challenges. Whether you are seeking to protect your inheritance or claim a fair share, expert legal guidance is essential.
At Ipswich Family Lawyers, we provide tailored legal advice to help you understand your rights and secure the best possible outcome.
Our team specialises in property settlements, inheritance disputes, and family law agreements. Contact us today for a confidential consultation. Let’s ensure your financial future is protected.
