Separation can be a stressful time especially when you are trying to divide property or do a property settlement.  When a separation occurs one party may be entitled to a portion of the assets and property pool that were accumulated during the course of the relationship or even before the relationship.  

Under the Family Law Act, the Court utilizes a four-step process to determine that any orders for property settlement made under section 79 and section 90SM of the Family Law Act (‘the Act’)are “appropriate…in altering the interest of parties”.  

The four-step process includes:

Step 1 - Calculating the overall property pool during the relationship including any initial contributions made by any of the parties and any debts.  

Step 2 – Calculating contributions during the course of the relationship, including earnings, gifts and inheritances.  

Step 4 – Other factors including future needs, such as a person’s age, health, whether they are caring for children or other people, and the length of the relationship.

Step 4- Whether the property division is “Just and Equitable” under section 79 of the Act.

As part of step 2, Inheritance payments are considered an asset and are not a protected category of monies (Bonnici and Bonnici (1991) FLC 92-272).  This means that an inheritance payment may be considered part of the overall property pool that requires it be split amongst the parties separating rather than a sole asset that can be retained by one party.  

Whether an inheritance payment forms part of the overall property pool may be impacted by a number of factors including the timing of an inheritance.

Inheritance received early on in a relationship

An inheritance received before the relationship or early on in a relationship, may not be considered a separate asset particularly where the relationship is long.  This is because the benefit of the inheritance payment may be considered to have ‘eroded’ over time.  For instance, an inheritance payment received early on in a relationship may be offset by monetary and non-monetary contributions of the other party such caring for children or performing domestic duties.  If this is the case, the payment may be considered as part of the overall property pool to be shared between parties, rather one party being able to keep the inheritance as an individual asset post separation.  

However, in some cases, a large inheritance could be considered to be a sole asset of the party who received the inheritance if the money was used to ‘springboard’ another significant asset or income generating stream during the relationship. For instance, if one party received an inheritance which was then used to purchase a family business or farmland which created income during the relationship.  

In some cases, where the funds from an inheritance payment have not been intermingled with the other assets, the Court may consider the inheritance as a sole asset of the recipient. In the recent case of Bishop & Bishop [2023] FamCAFC 138 the full court upheld the trial judge’s exclusion of the wife’s inheritance of $250,000 as it was placed in a trust and not mingled with the other assets.

Inheritance payments received during the relationship  

On the other hand, inheritance payments received during the relationship are likely to be used to benefit both parties.  For instance, if one party receives an inheritance payment during the relationship and uses that money to contribute to household renovations, family holidays or household payments.  The inheritance would then form part of the overall property pool as a contribution of the shared assets.  However, if the inheritance was kept in a separate account for instance and not used for the household, the Court may consider it a sole asset.

Inheritance payments later on in relationship or after separation

Inheritance payments received later in the relationship maybe considered a sole asset of one party.

For instance, in the case of Bevis & Bevis [2014] FAmCAFC 147, even though cohabitation period was 27 years, the Court held that a property bought by the husband post separation from an inheritance was considered the sole asset of the husband.

It is noted however that if the inheritance received later on in relationship is much larger than the overall asset pool which was accumulated during the relationship, then the Court may consider it as part of asset pool to ensure a just and equitable split.

Ultimately, an inheritance payment taken is considered on a case-by-case basis.  Inheritance payments can be a tricky part of the law and if you are wanting to find out more, please contact us for a free 15 minute consultation.