Paula Phelan is a Family Lawyer with Specialist Accreditation in this area from the Queensland Law Society. She has been a lawyer for 24 years and is the director of Phelan Family Law, a Rockhampton legal firm specialising in Family Law only.
Today's article looks at a case that deals with the question of an inheritance received by one party from their family after they have separated but before they finalise their property settlement. Are they entitled to keep the inheritance for themselves?
In the 2017 Family Law case of Calvin & McTier, the parties were married for 8 years between 2002 and 2010.
In 2014, 4 years after the parties had separated, and 3 years after they divorced, the husband received a substantial inheritance from his late father’s estate. It is important to know that although the parties were divorced, they had not entered into a property settlement.
The wife then applied to the Court for a division of property, including the husband’s inheritance of $431,000, which was the balance remaining.
At the trial, the husband got 75% of the assets, the inheritance having been included in the asset pool, and the wife got 25%. The Court then gave the wife a 10% loading because she had a lower income than the husband. That resulted in an overall division of the assets of 65% to the husband and 35% to the wife.
The husband was unhappy about the result and he appealed to the Full Court of the Family Court, saying that the inheritance should have been “quarantined”, rather than being treated as part of the asset pool. He maintained that he should have kept the whole of the $431,000.
The Full Court said that it could include the inheritance in the pool of assets to be distributed between the parties and that the inheritance could be treated the same as the parties’ other assets.
They confirmed that the discretion the Act gives them meant that it was up to the Court to decide how to treat property that was acquired after the relationship ended.
In the end, the Full Court dismissed the Appeal, so that the husband’s inheritance was treated as part of the asset pool and the wife received an adjustment for it.
Could the husband have avoided this situation?
Under the Family Law Act you are required to apply for a property settlement within one year of your divorce order becoming final.
Technically you cannot bring an application for property division unless you are within the 12-month period.
There are provisos, however, that if the party applying can show that they did not know about the rule or they would be financially disadvantaged if they can’t apply, then leave to proceed can be granted.
In this case, the wife did not apply for a division of property until 3 years after the divorce which was well and truly out of time. She was granted leave by the Court to proceed.
If you settle your property matters by way of an order of the court or a binding financial agreement prior to the receipt of an inheritance, then it is basically yours to keep.
The message here is that it may be a good idea to settle your property matters sooner rather than later if you would prefer to keep that lotto win or future inheritance to yourself.