It is common for either one or both spouses to receive an inheritance during their relationship.
Sometimes the inheritance is received during the relationship and sometimes it is received after separation but before there has been a formal property settlement under the Family Law Act 1975.
The purpose of this article is to look at how inheritances are treated in family law property settlements and to consider whether the timing of the inheritance matters.
The first point to make is that an inheritance is not a protected category of asset. The Full Court of the Family Court in Bonnici & Bonnici (1992) FLC 92-272 made it clear that an inheritance is not shielded from a family law property settlement and that the way in which an inheritance should be treated will depend upon the circumstances of each case.
At paragraphs 41-44, the Court stated:
“The more difficult issue in this case is as to whether the same [“the inheritance”] should be treated differently from other types of property in which the parties clearly have an interest.
The answer, we consider, must depend on upon the circumstances of individual cases. If, for example, in the present case, there had been no other assets than the husband’s inheritance, but the wife had, as his Honour held, clearly carried the main financial burden in the support of a family and had also performed a more substantial role as a homemaker and parent than the husband, then it would clearly be open and indeed incumbent upon a Court to make a property settlement in her favour from such an inheritance.
A property does not fall into a protected category merely because it is an inheritance. On the other hand, if there are ample funds from which an appropriate property settlement can be made and a just result arrived at, then the fact of a recently acquired inheritance would normally be treated as an entitlement of the party in question.
The other party cannot be regarded as contributing significantly to an inheritance received very late in the relationship and certainly not after it has been terminated, except in very unusual circumstances.”
The trial judge has a wide discretion as to how to treat an inheritance and each case must be looked at in the context of the individual facts.
In some cases in may be appropriate to include the inheritance in the one pool of assets. In this instance, the inheritance will generally be treated as a contribution made by or on behalf of the person who received the inheritance unless there is a clear intention that the inheritance was to both parties (Kessey & Kessey (1994) FLC 92-495).
In other cases, the trial judge may separate the inheritance from the other pool of assets and instead treat the inheritance as an important financial resource available to the recipient of the inheritance. The existence of this financial resource may warrant an adjustment in favour of the other party.
The timing of the inheritance may influence how the court deals with the inheritance although there is no hard and fast rule. From a practical point of view, it may be harder to argue that an inheritance received early in a relationship should be treated separately to the rest of the asset pool where that inheritance has been absorbed into the other assets of the parties. It may however be easier to treat an inheritance received late in the relationship or after separation in a separate pool or as a financial resource.
Two cases which illustrate how different approaches to inheritances received late in a relationship are set out below:
In Bishop & Bishop  FamCAFC 138, the inheritance was received by the wife 2 years before the end of a 23 year marriage. The money received by the wife from the inheritance had been kept separate by the wife such that it was not intermingled with other assets. At the hearing of the case, the trial judge excluded the inheritance from the calculation of the pool. On appeal, the Full Court noted that the trial judge had regard to the inheritance when considering whether any adjustment was appropriate under s.75(2) of the Family Law Act and the Full Court confirmed that this approach was open to the trial judge.
In Miller & Miller  FamCA 591, the Husband received an inheritance 3 years before separation in a 10 year marriage where there were two young children. The inherited assets represented a significant percentage of the overall pool. In this case, the Full Court considered it was more appropriate to include the inheritance in the pool of assets however gave the Husband a generous assessment on contributions.
As noted above, where the inheritance is included in the pool of assets, it will be usually be seen as a direct financial contribution made on behalf of the party who received the inheritance.
Typically a global approach is taken in family law property settlements. This involves looking at the asset pool as a whole and assessing the contributions that each party has made including direct financial contributions, indirect contributions and contributions made in the capacity as homemaker or parent. This is to be contrasted to an asset by asset approach where the parties’ contributions are assessed with respect to individual assets.
When assessing the contributions of the parties, it may be tempting to focus on the value of the inheritance, particularly when the inheritance represents a significant proportion of the asset pool. However, it is important that other contributions such as other financial contributions as wage earner and homemaker and parental contributions not be overlooked. In the cases of Wallis & Manning  FamCAFC 14, Hurst & Hurst  FamCAFC 146 and Jabour & Jabour  FamCAFC 78, the Full Court of the Family Court stressed that the Court must ensure that the “myriad of contributions” made by the parties at different times and in different ways are taken into account, weighed and balanced against each other.
The cases tell us that there is no fixed rule in relation to how inheritances are treated and judges have wide discretion when it comes to property matters. That said, it is a reasonable starting point to assume that an inheritance is more likely to be included in the pool of assets than not but that it will be reflected in the assessment of the parties’ myriad of contributions, including financial, homemaker and parental contributions. An inheritance received late in the relationship is likely to be considered as but one fact of contribution to be assessed along with all other contributions made during the whole of the relationship.