Information Centre · Family Law
How is an Inheritance Treated in Divorce and Property Settlement?
There is no rule that inheritances are automatically excluded, automatically pooled, or shared by any set percentage. Their treatment is considered under s 79 or s 90SM of the Family Law Act 1975 (Cth) as part of the whole just-and-equitable assessment.
Key points
- An inheritance received by one party is not automatically excluded from the property proceedings and is not automatically pooled or shared equally. It is considered under s 79 (married) or s 90SM (de facto) of the Family Law Act 1975 (Cth) as part of contributions, current and future circumstances and the just-and-equitable requirement.
- Characterisation matters. An inheritance received is property (subject to tracing where funds have been used); a vested and indefeasible entitlement may be property depending on the stage of administration; a discretionary trust interest is considered by reference to control, benefit and distribution history; a mere expectancy from a living testator is generally not property and is not treated as a financial resource absent specific facts.
- Timing (before, during or after the relationship, and before or after separation), size relative to the pool, use, mixing, preservation and the contributions of the other party are all relevant. No timing rule automatically excludes or includes an inheritance.
- Final property orders and Binding Financial Agreements are not automatically reopened by a subsequent inheritance. Reopening requires the statutory grounds in s 79A or s 90SN (for orders) or s 90K or s 90UM (for BFAs); each ground turns on the evidence.
- Full and frank disclosure applies to inheritances and testamentary interests. Foreign estates and trusts raise additional questions of jurisdiction, applicable law, tax and evidence. Tax and duty consequences depend on the transaction and applicable statute and should not be assumed.
- Married applications must ordinarily be filed within 12 months of the divorce order taking effect (s 44(3); leave under s 44(4)); de facto applications within 2 years of the end of the relationship (s 44(5); leave under s 44(6)). Obtain advice before signing any agreement or transferring assets.
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Inheritances raise a range of family-law questions. Whether an interest is inheritance already received, a vested entitlement, an expectancy, an interest in a trust or an entitlement in an estate under administration matters for characterisation. Each requires distinct analysis within the current statutory framework.
Received, vested and expectancy
The following distinctions are relevant:
- Inheritance received: property owned by the recipient, considered within the pool and the broader assessment; where funds have been used or transferred, tracing may be required.
- Vested and indefeasible entitlement: an entitlement to an estate that has vested but not yet been distributed may be property, subject to the stage of administration.
- Discretionary trust interest: considered by reference to control, benefit and distribution history; may be property, a financial resource or neither.
- Expectancy: a mere hope of inheriting from a living testator is not property and, absent specific facts, is not treated as a financial resource.
- Estate under administration: the analysis depends on where the administration has reached and on the terms of the will or the intestacy rules.
Fit within s 79 / s 90SM
After characterisation, an inheritance is considered under s 79 (married) or s 90SM (de facto) as part of contributions, current and future circumstances and the just-and-equitable requirement. The former framing that applied to property has been superseded by the current framework.
Timing and use
Timing (before, during or after the relationship, and before or after separation), size relative to the pool, how the funds have been used, preservation, mixing and the contributions of the other party are all relevant. No timing rule automatically excludes or includes an inheritance.
Trusts and foreign estates
Interests in testamentary trusts and discretionary trusts require careful analysis. Foreign estates and trusts raise questions of jurisdiction, applicable law, tax, disclosure and evidence. Expert advice is often required.
After final orders and BFAs
Final property orders and Binding Financial Agreements are not automatically reopened by a subsequent inheritance. Reopening or setting aside requires the statutory grounds in s 79A or s 90SN (for orders) or s 90K or s 90UM (for BFAs) and turns on the evidence.
Disclosure and evidence
Full and frank disclosure applies. Relevant documents can include wills, grants of probate or administration, estate accounts, trust deeds and distribution statements. Where dissipation is alleged, tracing and interim injunctive relief may be sought in appropriate cases.
Tax and duty
Tax and duty consequences depend on the transaction and the applicable law. CGT under the Income Tax Assessment Act 1997 (Cth), duty under State and Territory statutes, and any applicable family-law rollover or exemption should not be assumed; specific advice is required.
When to obtain advice
Advice should be obtained where an inheritance has been received, is expected, or has been placed in a trust, and before signing any agreement, transferring assets or responding to a claim. See our related guide on gifts and loans from parents.
Frequently Asked Questions
Is an inheritance excluded from the pool?
No. An inheritance received by one party is not automatically excluded from the property proceedings. Depending on the evidence it may be considered as a contribution by or on behalf of that party, as a financial resource or as part of the parties' current or future circumstances under s 79 or s 90SM of the Family Law Act 1975 (Cth).
Is an inheritance automatically added to the pool and shared equally?
No. There is no automatic inclusion or equal sharing rule. The Court considers timing, source, size relative to the pool, use and mixing, preservation, contributions of the other party, current and future circumstances, and the just-and-equitable requirement.
What is the difference between an inheritance received, a vested entitlement and an expectancy?
An inheritance received before final orders is property or, if disposed of, may be traced. A vested and indefeasible entitlement to an interest in a deceased estate may be property depending on the stage of administration. A mere expectancy from a living testator is not property and is generally not treated as a financial resource unless facts specific to the case establish otherwise.
How are testamentary trusts and discretionary trusts treated?
Interests in trusts are considered by reference to control, benefit, distribution history and structure. An interest may be property, a financial resource or neither depending on the facts. Foreign trusts and estates raise additional jurisdiction, tax and evidentiary questions.
Does timing matter — before, during or after separation?
Timing is relevant, but no timing rule is automatic. An inheritance received after separation but before final resolution is not automatically excluded from consideration. The Court considers the whole assessment under s 79 or s 90SM.
Can an inheritance received after final orders reopen a case?
Final orders or a Binding Financial Agreement are not automatically reopened by a later inheritance. Reopening requires satisfaction of the statutory grounds in s 79A or s 90SN (for orders) or s 90K or s 90UM (for BFAs); each ground turns on the evidence.
Do inheritance and testamentary matters need to be disclosed?
Yes. Full and frank disclosure applies to received inheritances, vested and indefeasible entitlements and, where relevant, expectancies and trust interests. Documents may include grants of probate, wills, trust deeds, estate accounts and distribution statements.
Are there tax or duty consequences?
Tax and duty depend on the transaction and jurisdiction. Federal CGT under the Income Tax Assessment Act 1997 (Cth), duty under State and Territory statutes and any applicable family-law rollover or exemption require specific advice; general rules cannot be assumed.
What are the time limits for family-law proceedings?
Married parties must ordinarily apply within 12 months of the divorce order taking effect (s 44(3)); leave under s 44(4). De facto parties must ordinarily apply within 2 years of the end of the relationship (s 44(5)); leave under s 44(6).
When should we get advice?
Advice should be obtained where an inheritance has been received or is anticipated; where an interest in a deceased estate, testamentary trust or discretionary trust may be affected; and before signing any agreement or transferring assets.
How Parke Lawyers Can Help
Parke Lawyers acts for spouses, recipients of inheritances, executors and trustees on the treatment of inheritances in property settlement and on the intersection with estates, trusts and tax, through our Family Law and Wills & Estate Planning teams. Engage us early — timing, structure and documentation of an inheritance shape how it is treated in a property settlement.
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Our combined family-law, wills and estates and trusts experience allows us to advise on the treatment of inheritances and testamentary interests within the current s 79 and s 90SM framework.
This article is general information only and does not constitute legal advice. Please obtain advice tailored to your circumstances.