My Former Partner Stands to Receive a Large Inheritance - Will that Impact My Property Settlement?

When two people whose relationship has come to an end decide to move on with their lives by dividing assets collected before, during and even after the union, the property settlement can be complicated when one of the parties expects to receive an inheritance from a family member at some point in the future.

Australian courts deciding on family law matters have wrestled with the issue of whether such an inheritance is properly characterised as property or a financial resource, which are considered differently under the Family Law Act 1975 (‘the Act’). The distinction is crucial to deciding whether an inheritance should be included when the court determines how property interests should be altered between the ex-partners.

An additional concern we’ll address in this article is the question of testamentary capacity of the person whose will benefits one of the parties to the property settlement through an inheritance.

The distinction between 'property' and 'financial resources'

In the context of family law, 'property' generally refers to assets that the parties own individually or jointly, including for example real estate, vehicles, savings, investments, and personal belongings. 'Financial resources,' on the other hand, encompass assets that may not be owned by either party but can be accessed or relied upon to meet their financial needs. Examples of financial resources include potential inheritance, future vested interests, trust distributions, and even potential compensation payouts.

When dealing with property division, the Family Law Act 1975 provides the court with a wide discretion to consider various factors, including the financial and non-financial contributions of the parties to the relationship and their future needs. Among these factors, the ‘future needs’ of each party are one of the considerations, with regard paid to a party’s age, health, care of children and income earning capacity. It’s at this stage expectations of an inheritance can play a significant role.

The court has made it clear there is no ‘one size fits all’ approach to an expected inheritance. Instead, each case is treated on its merits as to whether the inheritance is considered a financial resource. In the 1995 case of White and Tullock v White, for example, the court said the relevance of an expected inheritance ‘must depend upon the nature of the claims being put forward and the facts of the particular case’.

The role of testamentary capacity and the ability to change a will

A relevant fact in considering the place of an expected inheritance in a property settlement is the testamentary capacity of the person who left an inheritance in their will to one of the parties to the property settlement.

In cases where the person leaving the gift still possesses testamentary capacity and may yet change their will, the court is likely to be more cautious in considering potential inheritances as a factor to be considered in the property settlement. This is because the person can modify their will at any time: the expectation of an inheritance might not be certain. In such cases, the court is more likely to focus on the existing property and financial resources available to the parties.

By contrast, when a person has lost testamentary capacity due to age, illness, or any other reason, and cannot change their will, the expectation of an inheritance becomes more relevant in property division. In such situations, the court may treat the expected inheritance as a financial resource that is likely to become available to one of the parties. The court will then take this into account when determining a just and equitable division of the assets between the parties.

More factors relevant to expectation of an inheritance

The weight given to inheritance expectations by the court varies depending on several factors, including the nature of the expectation and its likelihood of realisation. Factors that may influence the court's consideration include:

Credibility: The court will assess the credibility and evidence provided regarding the expected inheritance. A valid and well-documented expectation will carry more weight than a vague or uncertain claim.

Source of expectation: An expectation arising from a clear and legally binding testamentary instrument, such as a valid will, is likely to be given more weight than a verbal promise of inheritance.

Timing: The timing of the expected inheritance may influence its consideration. If the anticipated inheritance is imminent, it may have a more significant impact on the property division than a distant or uncertain expectation.

The court will also consider other relevant factors, such as the financial needs and contributions of the parties during the relationship, their age and health, and their ability to support themselves independently.

How expert legal advice can help

As outlined in this article, the number of factors the court takes into account in considering whether a person’s expectation of an inheritance should be considered as part of a family law property settlement means there is a lot of work to do for both parties to support their argument.

The advice and guidance of experienced lawyers with a proven track record in both family law matters and estate litigation is vital to preparing your case, whether you’re arguing for the inclusion or the exclusion of an inheritance from a property settlement. Contact our expert team at Frigo James Legal today if any of the issues raised in this post apply to your situation.