Whether inheritance is passed down in the form of monies, shares or property, assets inherited by a single partner before or during a marriage can quickly become the focal point of divorce proceedings where they amount to a sum of any significance.
Nevertheless, the treatment of inheritance during divorce proceedings, and when it comes to establishing a financial settlement, can be shrouded in uncertainty. There are no clearly defined rules set out in Family Law as to how any inheritance should be dealt with for the purpose of financial settlements and in addition to this, under s25 of the Matrimonial Cases Act 1973, Judges have discretionary powers which can cause further ambiguity.
The over-riding factors a Judge considers when deciding upon the overall value of a financial settlement is whether that settlement is fair and just for both parties and whether it will meet the long term needs of both parties following the divorce. In cases where the value of assets in the matrimonial pot is relatively low a Judge is more likely to consider it necessary to include inherited assets in a settlement to ensure each parties’ long-term needs are met.
Where the value of matrimonial assets is of a reasonable level, Judges can use their discretion to ring-fence all or part of an inherited estate from being included in a divorce settlement. In deciding whether this is appropriate a Judge will consider how the inheriting partner treated the assets in question once received. Using inherited money as an example, if this has been held with other monies which are jointly owned it may be difficult to argue during divorce proceedings that the inherited sum be considered separate for the purpose of a settlement.
Where an inherited estate has been used to the benefit of both partners – such as to fund or maintain a certain standard of living for the family – it is even less likely a Judge will consider it necessary to preserve what is left of these assets for the benefit of the inheriting individual at the expense of their partner. Should the matrimonial home form part of an inherited estate, or be funded by the estate, a family law court Judge is unlikely to exclude this as an asset of the marriage except for in the most exceptional of circumstances.
As discussed in previous articles, growing numbers of couples are choosing to reduce the uncertainty surrounding divorce settlements by making a pre-nuptial agreement. Whilst Judges are not obliged to enforce the provisions of a pre-nuptial agreement they are now giving them far greater weight due to the landmark decision in Radmacher v Granatino (2010).
In this case the husband claimed for a large part of a multi-million pound estate inherited by the wife, despite signing a pre-nuptial agreement stating such a claim would not be made. The Supreme Court threw out the claim and upheld the terms of the prenuptial agreement previously agreed by both parties.
Post-nuptial agreements can also be considered where inheritance has not yet been received but where it is expected in the near future. Such assets can be treated as a capital resource and form part of a divorce settlement unless partners agree, either during or after separating, that no claims will be made against the estate once inherited.
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