Given the delays that are often experienced in both the Family Court of Australia and the Federal Circuit Court of Australia (and in addition to the time that it takes for a person to rearrange their affairs upon separation), parties will often receive an inheritance after they separate, although before they have entered into a property settlement with their ex-partner.
There is a common misconception that under these circumstances, an inheritance received post-separation will not be taken into account in relation to the family law matter. The case of Holland & Holland  FamCAFC 166 demonstrates that this is in fact incorrect.
In the matter of Holland & Holland, a property was, at first instance, excluded from the property pool, as it had been received post-separation. The property was considered to be a financial resource (that is, an amount of money that a person would have access to post-separation, but not an asset of the relationship). The inheritance received was worth $715,000. The asset pool, not including the inheritance, was only $370,000.
The wife in this matter appealed, saying that the inherited property should have been included as an asset, and not as a financial resource.
The Full Court of the Family Court agreed with the wife’s assertion, stating that:
“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’ from, or ‘immune’ from, consideration in applications for orders pursuant to s 79 [of the Family Law Act 1975 (Cth) (‘The Act’)]”.
Essentially, what this means is that any property owned by a party to a breakdown of a relationship, either legally or equitably, will be included in the asset pool. It then becomes a question of what contribution the other party may have made to that asset. It is not correct to assume that it will be excluded and, consequently, that the ex-partner will receive no money as a result of that asset being inherited.
There are two approaches that a court can take when altering property interest. Firstly, the court can consider a ‘global’ approach, which amounts to all of the assets being pooled, and subsequently divided in accordance with the principle set out in Sections 79(4) and 75(2) of the Act. The other approach is an ‘asset by asset’ approach which, as the name suggests, amounts to each individual asset being divided between the parties in accordance with their respective contribution relevant to that asset.
Therefore, whilst an inherited property may be included in the asset pool, it is still open to the court to conclude that the other party made no contribution to it. If the division of the asset is approached on an ‘asset by asset’ basis, the outcome would be that, despite its inclusion in the asset pool, the ex-partner would receive no entitlement to that property.
A grey area in relation to an inherited property may come about where a party has, throughout the course of the relationship, done work on a property which is later inherited – or if there has been intermingling of finances between the parties and their parents. For this reason, it is crucial to obtain the advice of an Accredited Specialist in order to identify whether a party to a relationship breakdown has an actual entitlement to a share of a property – as opposed to whether or not that property would be included in the asset pool, as this question would seemingly have been answered in the judgement handed down in the matter of Holland & Holland.
If you would like to receive advice with respect to how it is that inheritance will be treated in your own family law matter, or what the entitlements of your ex-partner may be more generally, please don’t hesitate to get in contact with one of Coleman Greig’s Accredited Family Law Specialists.