In the realm of family law, disputes often arise over the division of assets following the dissolution of a marriage or relationship. One of the most misunderstood aspects in these disputes is the treatment of inheritances. A prevailing belief among many is that inheritances are somehow sacrosanct or immune from these divisions. Many assume that inheritances fall into a ‘protected category’ – a special class of assets that remain untouched and separate from the regular asset pool available for distribution between parties.
However, this is a misconception. Inheritances do not automatically enjoy a universal protection from family law property settlements. Their treatment can vary significantly based on a variety of factors, including the specifics of the case, the court’s discretion, and crucially, the timing of the inheritance.
The purpose of this article is two-fold. Firstly, to dispel the myth surrounding the inviolability of inheritances in family law disputes. And secondly, to delve deeper into the nuanced world of how these inheritances are treated in property settlements, with a specific focus on the significance of the timing of the inheritance. Through this exploration, readers will gain a clearer understanding of how family law views inheritances and the many considerations that come into play during settlements.
The Treatment of Inherited Assets: Timing & Application
When unravelling the intricacies of inheritances in family law property settlements, the timing of the inheritance's receipt plays a pivotal role. If an inheritance is received early in the relationship, it might be integrated more fully into the couple’s shared assets, especially if it's used towards mutual goals like purchasing a home or paying off joint debts. On the other hand, an inheritance received shortly before a separation or even post-separation can retain its distinct character, often leading to an argument that it should remain separate or only partially included in the asset pool.
Over the course of a relationship, especially a lengthy one, the distinct identity of an inheritance can be "eroded." For instance, if inherited money is deposited into a joint bank account and subsequently used over the years for the couple's common expenditures, tracing and identifying that money becomes challenging. Over time, it becomes intertwined with the couple’s shared financial life. Consequently, distinguishing what portion of the current assets originated from the inheritance can be complicated, if not impossible.
One intriguing facet in family law property disputes is the “springboard” argument. This perspective posits that even if an inheritance is kept separate from the couple's joint assets, it can still provide a financial foundation or "springboard" that indirectly benefits the relationship. For instance, if an inherited sum allows one party to invest in a business venture without touching the couple’s shared funds, that venture's subsequent success (or failure) can still influence the couple’s overall financial position.
Inheritances can be either kept separate or used for the mutual benefit of both parties. If an inheritance is used to purchase a marital home, finance joint ventures, or support the family in any significant way, it becomes challenging to argue for its exclusion from the asset pool during property settlements. In contrast, if an inheritance is kept entirely separate—say, in an individual account or investment—it may be viewed differently, though it's still not exempt from consideration.
The Family Court’s standpoint on this matter was aptly encapsulated in the statement from the Lee Steere case. The Court opined, "The use of inherited property during a marriage to acquire assets, whether they are in joint names or in the name of the party who received the inheritance, is a factor to be taken into account when determining each party’s contribution."
This statement underscores that no matter how an inheritance is handled—whether blended with other marital assets or kept separate—it doesn't escape the scrutiny of the Court. The manner in which it's used, and its impact on the marital financial landscape, becomes instrumental in the Court's determinations.
In the case of Bishop & Bishop [2013] FamCAFC 138, the wife obtained an inheritance two years prior to the conclusion of their 23-year marriage. She maintained the inheritance separately, ensuring it wasn't blended with other marital assets. During the trial, this inheritance wasn't included in the asset pool's calculation. However, upon appeal, the Full Court observed that the initial judge did consider the inheritance when evaluating any necessary adjustments according to s.75(2) of the Family Law Act. The Full Court affirmed that the judge's approach was valid.
In the case of Miller & Miller [2014] FamCA 591, during a 10-year marriage with two young children, the Husband was bequeathed an inheritance that made up a considerable portion of the overall asset pool. This inheritance came to him three years prior to the couple's separation. The Full Court, while deciding, opted to incorporate the inheritance into the asset pool. Nevertheless, they acknowledged the Husband's individual contributions, providing him with a favourable assessment.
Prospective Inheritances: The Uncharted Waters
Prospective inheritances refer to the potential inheritance a person might receive in the future. Unlike current inheritances, which are tangible, definite, and can be factored into settlements with clarity, prospective inheritances are cloaked in a layer of uncertainty. This is because their realization depends on future events, most notably the passing of a benefactor, and other potential unforeseen changes to a will or estate.
While it might seem logical to some that future inheritances be considered in current settlements, the courts have a nuanced view on this. They typically categorize prospective inheritances as potential financial resources rather than actual property. This distinction is crucial. Unlike property that can be divided or factored into settlements, potential resources are speculative and aren’t considered with the same weight as current assets. However, their potential existence could influence decisions around the parties' future financial positions.
While often treated with caution, there are scenarios where prospective inheritances bear relevance in family law disputes. One such instance is the case of Tulloch v White. In this case, the court had to grapple with the concept of a significant expected inheritance.
“In a case where the testator had already made a Will favourable to the party but no longer had testamentary capacity and there was evidence of his or her likely impending death in circumstances where there may be a significant estate, and where there was a connection to s 75(2) factors, it would be shutting one’s eyes to treat that as irrelevant”.
Even though prospective inheritances are laden with uncertainty, when there's evidence that one party might come into considerable wealth in the foreseeable future, it can tilt the scales in settlement deliberations. The key lies in the strength of evidence regarding the expected inheritance and its potential implications on the financial landscape of the parties involved.
In certain circumstances, the looming expectation of a substantial inheritance can cause the courts to take a pause. The case of Grace v Grace offers a noteworthy example. In this instance, the court proceedings were adjourned due to an imminent inheritance. What made the inheritance fixed in the future was that the testator had lost their legal capacity due to illness and could not amend their will. The rationale behind such a decision is that the forthcoming inheritance could significantly alter the financial landscape of the parties, making any current determinations potentially unfair or inappropriate. By waiting until the inheritance is realized, the court can make a more informed and equitable decision.
Factors Influencing Inheritance Treatment: Asset Pool & Recipients
The treatment of an inheritance is intricately tied to the overall financial landscape of the parties involved. A primary influencer in this respect is the size of the total asset pool available for distribution. When the available assets are substantial, an inheritance might be viewed differently than in cases where the inheritance forms the bulk of the assets.
In situations with a large asset pool, an inheritance, especially if it is relatively modest, might not significantly sway the overall distribution. It could be considered alongside other assets, with its individual impact being diluted amidst the other assets.
Conversely, in cases where the inheritance is a dominant or substantial part of the available assets, it inevitably draws more attention and scrutiny. The inheritance can become a focal point of discussions, especially when there are limited assets outside of the inheritance.
The Family Court’s decision in Bonnici & Bonnici (1992) FLC 92-272 sheds light on scenarios where most of the asset pool is tied up in an inheritance. The Court opined that in situations where there are limited assets outside of the inheritance, it becomes challenging to meet the needs of both parties without considering the inheritance. This observation highlights the pragmatic approach the Court often adopts, ensuring that both parties' needs are addressed while maintaining a fair distribution.
“if…there had been no other assets than the husband’s inheritance, but the wife had…clearly carried the main financial burden in the support of a family and also performed a more substantial role as a homemaker and parent…then it would clearly be open and indeed incumbent upon a Court to make a property settlement in her favour from such an inheritance”.
The matter of who received the inheritance is pivotal. There is a prevailing notion that inheritances are personal assets, awarded to a single individual. However, the family law realm often delves into the nuances of relationships, assessing not just the receipt but also the relationships with the testator.
In the case of The Marriage of Heath, the court recognized the wife's contributions to her husband's inheritance from his parents. This recognition came because she had actively cared for his elderly parents, particularly his mother, during their times of need. It challenges the assumption that inheritances are automatically excluded from family law disputes.
A Holistic Approach to Property Settlement
While inheritances, monetary gifts, and direct financial investments are tangible and easily quantifiable, the courts place immense emphasis on recognizing other forms of contributions. These could span the gamut from non-financial contributions like homemaking, child-rearing, emotional support, or even contributions to the other party's career or business growth.
While a financial injection from an inheritance can influence the property pool's landscape, it cannot eclipse other significant contributions. The multifaceted nature of relationships demands a comprehensive lens that goes beyond mere numbers.
Cases such as Wallis & Manning have consistently emphasized this comprehensive viewpoint. In this particular case, the Court accentuated the significance of recognizing various contributions, both financial and non-financial. It reiterated that while financial contributions, like those stemming from inheritances, play a role, they do not singularly determine the outcome. The intangible efforts, sacrifices, and inputs of both parties, often spanning years, weigh in heavily during settlements.
While inheritances, especially those garnered later in a relationship, can tilt the scales, they are but one ingredient in a much more intricate recipe. They mingle with other contributions, both tangible and intangible, painting a picture of a relationship’s true financial story.