Inheritance is often a live issue of dispute between parties to a property settlement. An inheritance is usually treated like any other contribution or property. It is not protected from distribution just because it is an inheritance.
How an inheritance is treated depends on a number of factors including the timing of when it was received and how it has been applied.
If an inheritance was received during the relationship and used for the benefit of the parties, it is likely to be treated as a financial contribution by the party who received the inheritance.
Where an inheritance is received early in the relationship, it may be treated as an initial contribution. In a long relationship, the earlier the inheritance is received, the weight given to the initial contribution is likely to be diminished.
However, if the inheritance was significant or created a springboard for the parties’ wealth, it is likely that an adjustment to contributions may be made in favour of the party who received the inheritance.
The greater the contribution, the greater a party’s final entitlement to property division.
Late in the Relationship
Where an inheritance is received late in a relationship or after separation, the receiving party may contend that the inheritance should be excluded from the property pool.
This can be a difficult area of the law, as the court has a wide discretion.
The court can choose to:
Where the inheritance is excluded, the court may still take the inheritance into account when considering adjustments for future needs.
Where the property pool is not large enough to give effect to a fair settlement, then the court is more likely to include the inheritance in the property pool.
Recent cases have suggested that even where an inheritance is received several years after separation, the courts may still include it in the asset pool. This reinforces the legal principle that all existing property interests (legal and equitable) of the parties should be considered when deciding a fair division of property. It then becomes a matter of assessing contributions and the future needs of the parties.
How a court treats an inheritance in these instances depends on the facts and circumstances of the case, and the approach taken to assessing contributions.
Contributions to inheritance by non-inheriting party
An inheritance received by one party is normally considered to be a contribution made by that party. However there are certain instances when the court may regard the inheritance as being contributed by both parties.
An example may be when the non-receiving party has assisted significantly in the care of the deceased. Another instance may be where improvements have been made by the non-receiving party to the asset inherited.