25 Aug How to protect your inheritance from divorce – from structuring a financial agreement to keeping separate accounts
If you’ve received an inheritance in your name only, you may think it’s yours to keep even if your relationship ends, but family law isn’t always that straightforward. Depending on your circumstances, an inheritance may be taken into account when assets are divided. So, when can an inheritance become part of a property settlement, and what can you do to protect it?
In this article:
- Could you lose an inheritance in divorce?
- How can a financial agreement protect an inheritance from divorce?
- Expert tips for structuring a financial agreement
- Other ways to protect your inheritance
- How Toomey Family Law can help
Could you lose an inheritance in divorce?
It’s a common misconception that an inheritance left specifically to you will always remain yours, even if your relationship ends. After all, the money was intended for you – right?
However, this isn’t always the case in Australian family law because who the inheritance was intended for isn’t the only consideration. In fact, inheritance is often considered a shared asset between a married couple. So, depending on the circumstances, an inheritance received by one spouse may still be included in the asset pool when the couple separates and goes through property settlement.
When is an inheritance included in a property settlement?
So what determines whether your inheritance will be included in a property settlement or not?
As with many things in Family Law, there’s no one-size-fits-all answer. The Court will look at many different factors to make their determination, such as:
- Timing of the inheritance – were you married when it was received? How long had you been a couple?
- Contributions – did your partner contribute to you receiving the inheritance in any way?
- The intentions of the deceased party – did they wish for the inheritance to remain solely yours, or to be shared with your partner?
- Value of the inheritance – if received before or during the marriage, the inheritance may be considered an ‘indirect financial contribution’ to the shared asset pool.
- Treatment of the inheritance during the relationship – was it kept separate to your shared assets, or part of it?
- Use of the inheritance – has any or all of the inheritance been spent? If so, for your own or a shared purpose?
The Court will weigh these factors alongside the other contributions made by each party during the relationship. It might consider that an inheritance received before or during the relationship may be treated as a financial contribution by the person who received it, and the Court will consider its value, the timing and how it was used to potentially weigh how it should be applied in your situation.
Ultimately, there’s no set formula for how much of an inheritance you will ‘keep’. The outcome will depend on the circumstances of your relationship and what the Court considers just and equitable.
How can a financial agreement protect an inheritance from divorce?
There are some things you can do to protect an inheritance from divorce. And one of your first steps should be to enter into a financial agreement.
Enter into a financial agreement
A Financial Agreement (also just known as a financial agreement, a BFA or even a pre- or post-nuptial agreement) is a written legal document between a couple that outlines how they wish their assets to be dealt with in the event of a relationship breakdown. This includes property and finances, such as an inheritance.
This formal contract is a great way to avoid costly legal battles and lengthy court proceedings. It also helps you retain more control over your own assets – including any inheritances they might receive.
In a Financial Agreement, you can agree with your partner that an inheritance will remain with the original recipient even if the marriage were to dissolve and despite any evidence to the contrary. But without it, you’ll be subject to the Court’s decisions on how your assets and liabilities should be distributed.
A Financial Agreement can be made by a couple whether they’re married or de facto, and either before, during or after a relationship ends. It could cover an inheritance you’ve already received or even one that you expect to receive one day in the future.
Even though you can make a financial agreement at any time during or after your relationship, we always advise making the contract as early as possible. The healthier the communication between the two parties while negotiating terms of the agreement, the better. And having a financial agreement in place is a fantastic way to ensure that any inheritances you receive remain with you, even if you do find yourself separating from your partner.
Expert tips for structuring a financial agreement
In order to be legal, a financial agreement must meet all the requirements set out in Section 90 of the Family Law Act 1975. These include elements such as all parties signing the agreement, all parties receiving independent legal advice before signing, and all parties entering into the agreement voluntarily.
A financial agreement can encompass all aspects of a couple’s financial relationship or be limited to certain assets. For example, you may wish to draw up a contract that specifically deals with your inheritance, particularly if this is a big part of your future financial security.
When using a financial agreement to protect an inheritance from divorce, it’s important to clearly identify the inheritance amount. Aim for simple language with no subtleties or ambiguity. Explicitly state that the inheritance is to remain solely yours and not included in the shared asset pool at property settlement.
We highly recommend getting in touch with our team if you’re considering creating a Financial Agreement to protect an inheritance. Our family law team can help you set out a financial agreement that is easy to understand, clearly sets out the assets that need protecting and is valid under Australian law.
Other ways to protect your inheritance
After the financial agreement, there are additional steps you can take beyond a financial agreement.
- Keep your inheritance in a separate account under your own name. Don’t deposit it into any shared accounts and don’t deposit any shared money into the inheritance account. If possible, consider keeping it in a separate trust. Ideally, this would be through a testamentary trust in the deceased’s will.
- Gather evidence to prove when your inheritance was received and anything that indicates what the deceased’s intentions were in relation to that inheritance – particularly if obtained before/after your relationship and given solely to you.
- Never hide your inheritance from your partner. Trying to conceal an inheritance can have serious consequences and the Court might take this non-disclosure into account when making orders.
- Finally, always get legal advice from a trusted lawyer as early as possible. This will go a long way to easing your worries and helping you understand the right steps to take.
How Toomey Family Law can help
Our team would love to help you safeguard your inherited wealth. We have years of experience guiding our clients to set up financial agreements to protect inheritance from divorce. We can ensure the language is clear and all legal elements are satisfied so you can feel confident that your assets are protected.
If you want to learn more about how to protect an inheritance from divorce, reach out to our team of legal experts today.