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WHAT YOU NEED TO KNOW ABOUT POST-SEPARATION INHERITANCES – A FAMILY LAW PERSPECTIVE

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By Jack Job, Lawyer

You or your former partner may receive an inheritance after you have separated, but before you have reached a final property settlement. In Family Law, this is often referred to as a ‘post-separation inheritance’.

Does a post-separation inheritance need to be disclosed?

If there is a Family Law dispute concerning financial matters, each party has a duty to provide full and frank disclosure of their financial position.

This means that the recipient of a post-separation inheritance must disclose that inheritance to the other party to ensure their compliance with this duty. A failure to do so may result in significant consequences, including costs orders and any final property settlement reached between the parties being set aside by the Federal Circuit and Family Court of Australia (the Court).

The duty of disclosure becomes complicated if Supreme Court proceedings are commenced to contest and/or challenge the deceased’s will and estate from which the post-separation inheritance is to be received. In such circumstances, a party may be restricted from using documents obtained during such Supreme Court proceedings for Family Law purposes. If a party were to use such documents for Family Law purposes, they may be in breach of what is known as the ‘Harman Obligation’, which prevents a party from using documents obtained in one proceeding for a collateral or ulterior purpose unrelated to the proceedings in which the documents were initially obtained.

How is a post-separation inheritance dealt with in Family Law?

How the Court deals with a post-separation inheritance will depend upon whether that inheritance is classified as ‘property’ or a ‘financial resource’, as well as the circumstances of the case more generally.

If the Court considers a post-separation inheritance to be ‘property’, that inheritance will be included in the asset pool available for division between parties to a Family Law financial dispute. A post-separation inheritance in the form of a real property, and of which a party is the sole proprietor, is an example of a post-separation inheritance that may be considered as ‘property’ in a Family Law context.

If a post-separation inheritance is classified as ‘property’, the Court has discretion in how it treats the asset pool available for division between the parties. For example, the Court may consider it appropriate to ‘quarantine’ a post-separation inheritance from the rest of the asset pool available for division between the parties. Ultimately, the approach adopted by the Court in this regard will depend upon the circumstances of the case and the discretion of the judicial officer hearing the case.

Conversely, if the Court considers a post-separation inheritance to be a ‘financial resource’, that inheritance cannot be included in the asset pool available for division between parties to a Family Law financial dispute. However, the Court can still consider that inheritance, and adjust the overall division of the asset pool in a party’s favour in order to address their future needs and achieve a just and equitable outcome. A post-separation inheritance in the form of a testamentary trust, to which a party is a beneficiary and over which that party has no or limited control, may be considered a ‘financial resource’ in a Family Law context.

What estate planning options are available with respect to post-separation inheritances, and inheritances more generally?

If you anticipate receiving an inheritance, you may wish to consider what estate planning options are available to you. As set out above, how an inheritance is received can impact how the Court can deal with that inheritance in a Family Law financial dispute.

If you require legal advice or representation with respect to your Family Law matters, please contact our highly experienced Family Law Team at MST Lawyers on (03) 8540-0200 or at familylaw@mst.com.au .

Please contact our highly experienced Wills and Estate Team at MST Lawyers on (03) 8540-0200 if you require legal advice with respect to estate planning options.