The Inheritance Myth: If Dad dies and leaves me money after I separate, it’s mine!

5 December 2019

There is a mistaken belief that a substantial inheritance received after separation is automatically protected from a family law claim – sad to say, if it’s your inheritance, that this is often very wrong.

This misconception was addressed in the recent case of Calvin v McTier.

The disgruntled husband lost at trial before a judge, so he appealed to a Full Court of 3 judges and lost again. 

Background

The parties were in a relationship from 2002 to 2010 and divorced in 2011. The husband received a substantial inheritance in 2014 worth $430,686. This made up 32% of the net value of the parties’ assets and resources at the time of the trial. The husband had also brought a lot of money into the relationship at the start. The couple had one child and shared his care equally.

The Judge (the bad guy or the good guy in the story, depending on your point of view):

  1. Followed the usual analysis process for deciding what was a fair split of assets, and
  2. Assessed the contributions of the parties, both financial and otherwise, before, during and after the relationship.NB: Contributions during the relationship are usually treated as equal.
  3. However, due to the substantial contributions both pre relationship and from the inheritance after separation, which the wife did not have a role in contributing to, overall the contributions were found to be 75/25 in favour of the husband.
  4. Next, as often happens, due to the disparity in the earning capacity of the parties, the judge made a 10% adjustment in the wife’s favour; and
  5. Ultimately subtracted one from the other and divided the assets 65/35 in favour of the husband.She got 35% of the total of $1.3mil, or $455,000.If the inheritance was removed, this represented 52% of the other assets.

The husband still wasn’t happy (perhaps he should have been) and appealed on the basis that:

  • The inheritance should not have been available for division; and
  • A proper assessment of their contributions could have been made without including the inheritance in the net assets and resources to be divided.

The case is interesting because the husband’s lawyers rather optimistically argued that there was no clear connection between the inheritance and the parties’ marriage. They submitted that the parties’ marriage was not enough, of itself, to justify the Court bringing the inheritance into account.  

Further, they said that contributions to the marriage had to be made contemporaneously with the existence of the marital property up for division. This argument, if successful, would potentially support the exclusion of any money received after separation from the family law division with the other party.

Outcome

The Full Court of the Family Court rejected the appeal. The Court concluded that the trial judge was perfectly entitled, in his very wide-ranging discretion (which is a characteristic of Family Law cases), to include after acquired property in the property available for division, despite 4 years having elapsed between separation and the inheritance being received.

To add insult to injury, and without surprising family lawyers who followed the case, the court concluded by ordering the husband to pay the wife’s costs of the appeal since he lost out rather comprehensively in the appeal.

Take away points

  • The Court has a broad discretion to make orders regarding property acquired after separation;
  • This discretion is not affected if the property is an inheritance;
  • The Court will usually include all property acquired post-separation in the pool for division – however you receive it;
  • If your position post separation is likely to get better compared with the other party, get your property settlement done and documented in a legally binding way without delay!Only then will you be protected from any further claim in relation to assets that come your way later.
  • Finally, if you have informally divided your assets with the other party, they can potentially come back and make another claim against you later. The most extreme case of this sort which we have seen was brought 22 years after the informal division agreed to by our client - when his superannuation had grown dramatically!

In cases where one party has received or may receive the benefit of a substantial inheritance, Tattslotto win, business success or other windfall, after separation it is vital to seek expert legal advice.

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