How Does Financial Separation Work?
There are four ways financial separation can occur:
- By Orders of the Family Court of Western Australia;
- By Consent Orders;
- By Binding Financial Agreement; or
- By Informal Agreement.
You should seek legal advice from a lawyer experienced in Family Law property matters to determine the best form of financial separation for you.
When finalising your orders formally, there is an expectation that Orders or an Agreement should completely sever the financial ties between the parties, known as the clean break principle, and then ‘vest’ any property a party is entitled to in the name of that party. In doing that, it means that except in very limited circumstances, your ex should not be able to come back and try and seek further funds from you.
What Happens if I receive an Inheritance Payment Prior to Financial Separation?
It’s not always simple to come to an agreement on financial separation, and there is always a risk if you only come to an informal agreement, that your ex can try and come back later and seek more funds from you. This may occur where one party receives an inheritance after the death of a parent.
There is a common misunderstanding that inheritance received after separation, or towards the end of the relationship will not be included in the asset pool. This is not always correct. Assets obtained post-separation or to benefit only one party are still considered a part of the asset pool. The Courts starting position is that all assets obtained, during the relationship and even post-separation is to be considered during a property split. This is often referred as the “global approach” and whilst it is common, there are exceptions to the rule. If a party wishes to “quarantine” inheritance then they must be able to show there are sufficient funds in the asset pool to ensure a just and equitable division and that the other party can still receive a fair portion of the asset pool without having to take from the inheritance.
When it comes to inheritance, relevant considerations include, when the inheritance was received and the nature of the relationship between the deceased and the other party.
If the inheritance was received early in the relationship or even before the relationship commenced, it is usually treated as an initial contribution of that party and is a relevant factor in the division of assets.
If the inheritance was received during the relationship it can be considered to be used for the “betterment of the family or the couple” and is likely to be considered a contribution to the relationship and not to the benefit of either party. The exception to this however is if the deceased makes it very clear that the inheritance is only to benefit the inheriting party. In which case, the funds would likely be considered as a financial contribution by the inheriting party and there would be some recognition in the division of the asset pool of the money provided.
If the inheritance is received post-separation, there are two ways it could be treated, and, depending on your individual separation will depend how it is treated. It will be treated as either:
- Part of the global assets; or
- A quarantined asset
Relationship Between the Deceased and the Other Party
When deciding if an inheritance should be shared between the spouses in a financial separation, the court considers the intention of the deceased. If the deceased appears to have left the inheritance for the betterment of the entire family, a court is likely to include it in the asset pool despite the receipt of the inheritance being after separation. On the other hand, if it appears to have been left only to the named beneficiary, it is likely to be kept apart from the divisible assets. Similarly, the court will look at the relationship of both spouses with the deceased to discern what the intentions would have been.
Essentially, if the inheritance is received before finalising Consent Orders for the property settlement, it is possible that it may be included in the asset pool. It is best to seek legal advice on the possibility of including or protecting an inheritance from being included.
For advice on financial separation, especially if you are aware you or the other party will be, or have, received inheritance or the likelihood of inclusion of an inheritance after separation, contact us on (08) 9408 5212 or email@example.com to book a meeting.
Please note that the above is general information and should not be relied upon as legal advice. All situations are different and legal advice must always be tailored to the specific situation.