Inheritances during divorce proceedings or separations can be a point of contention. Without clear guidance or prenuptial agreements, the intricacies of splitting inheritances can seem daunting. Here, we explore how inheritances are dealt with in the context of a separation, including what is and isn’t protected, types of inheritances, and the law surrounding them.
The starting point when dealing with an inheritance is that it is separate property, with individual rather than collective ownership. This means the other spouse or partner is unable to make a claim against it in a divorce. So, if a spouse or partner receives an inheritance, whether it is by way of cash funds, property, or some other type of asset, the inheritance will remain separate, subject to some exceptions, which are detailed below.
Inheritances can become relationship property (that is, property that needs to be shared between you) depending on the use to which the inheritance is put. If an inheritance is intermingled, i.e. mixed in with other relationship property or applied to relationship property, it could lose its status as separate property.
An example would be if a husband receives an inheritance from his late father’s estate of $200,000, that sum of money will remain separate property if the husband keeps the funds in a separate account and does not mix it with any other accounts or assets. The funds could, however, stop being separate property if the husband, for example, uses the funds to repay the mortgage on the family home or fund renovations on the family home. In such a scenario, the funds will be held to have been intermingled and therefore may no longer be separate property.
There are also some circumstances where an inheritance can become relationship property not as a result of intermingling, but as a result of the type of asset that is purchased using the inheritance.
For example, a wife receives a share of a house as an inheritance and that house is owned jointly with her siblings. If the house is sold and the wife uses her share of the sale proceeds to buy a car, the car will be relationship property. This is because cars are classed as a “family chattel”, which is always relationship property regardless of how it was acquired.
If a spouse or partner receives or is due to receive an inheritance, there are steps that can be taken to protect the inheritance during divorce, regardless of how it is used. The couple would need to enter into a contracting out agreement (also known as a prenuptial agreement). The contracting out agreement would specifically ringfence the inheritance as separate property. Thereafter, it wouldn’t matter what the inheritance was used for, or whether it became intermingled as the contracting out agreement would ensure it remained separate property.
The above rules apply to relationships of three years or longer in duration. If a relationship lasts for three years or less, an inheritance may remain separate regardless of intermingling or how the inheritance is used.
Overall, for an inheritance to remain outside the bounds of relationship property or a family chattel, it must be kept as a separate asset. Otherwise, a contracting out agreement should be signed before the end of the relationship.
Get Specialised Legal Advice on Separation & Inheritance with Sharon Chandra
It’s always advisable to talk to a specialist divorce lawyer or family lawyer when it comes to matters of separation. If you are in a relationship and seek to protect an inheritance or want to understand how your inheritance will be divided upon divorce, please contact Sharon below.