Inheritance and Divorce: Protecting Your Assets After Separation

Inheritance and Divorce: Protecting Your Assets After Separation

1. Introduction: A Unique Asset

Inheritances can occupy a unique position in the minds of those going through divorce. Inheritances often comprise a substantial part of the wealth of the spouse’s original family, or perhaps a family heirloom, and it can seem unfair that the other spouse may receive a part of the inheritance on divorce.

But does that emotional connection protect inheritances from being divided on divorce?

In this post we will examine how the court views inheritances when considering a financial remedies claim on divorce.

We will begin with a discussion of the concepts of ‘Matrimonial Property’ and ‘Needs’, both of which are central to what happens to inheritances on divorce.

The form that the inheritance takes may also have a bearing upon the outcome. We will therefore briefly look at different types of inheritances, and how the court may view them.

And what about inheritances that might be received in the future? We will also look at how the court views these.

As with almost any issue that may arise on divorce, inheritances can be the subject of myths and misconceptions. We will look at some of the most common that may arise.

Finally, we will examine the important question of whether, and if so how, inheritances may be protected, and kept separate from the divorce settlement.

So, to the concept of Matrimonial Property.

2. Is an Inheritance Matrimonial Property?

Whilst the court will want both parties to disclose full details of all of their financial assets before it considers a financial remedies claim, that does not necessarily mean that all of the assets of both parties will fall to be divided on divorce.

The court will view assets as falling into one of two categories: Matrimonial Assets and Non-Matrimonial Assets.

The distinction relates to when the assets were acquired, and where they came from, the point being that the acquisition of some assets did not relate to the marriage itself, and should not therefore be automatically put into the ‘pot’ for division between the parties. (Matrimonial Assets have been described as “the fruit of the matrimonial partnership”.)

To put it in the terms recognised by the law, Matrimonial Assets are those assets that were acquired during the marriage, through the joint efforts of the parties to the marriage. Note that ‘during the marriage’ usually refers to the period beginning with the time the parties began cohabiting, and ending when they separate.

This means that Non-Matrimonial Assets can include:

• Assets acquired by one party before the marriage;
• Gifts to one party;
• Inheritances received by one party; and
• Assets acquired by one party after the separation.

As a generalisation, when considering a financial remedies claim on divorce, the court is likely to start from the position that matrimonial assets will be shared between the parties, and non-matrimonial assets will remain the property of the party that acquired them.

So, it would seem that the position of inheritances on divorce is clear: they are kept by the party who received them.

But things are not quite so simple.

For a start, Non-Matrimonial Assets may become ‘matrimonialised’ during the course of the marriage. Matrimonialisation occurs when the non-matrimonial asset is ‘mixed’ with matrimonial assets, for example by being put into a joint bank account, or used to purchase a matrimonial asset, such as the matrimonial home.

And then there is the issue of Needs.

3. Inheritances and Needs

The other important concept that the court must consider on a financial remedies claim is ‘Needs’.

‘Needs’ refers to the future financial needs of the parties and any dependent children. In particular, it refers to housing needs, to ensure that the parties have enough money to obtain suitable housing for themselves and the children, and income needs, to ensure that the parties have sufficient income to maintain a reasonable standard of living.

In many cases, a division of the Matrimonial Assets will provide both parties with sufficient to meet their needs.

But what if it does not?

In such a case, the court can ‘dip into’ non-matrimonial assets, including inheritances, in order to meet the needs of the other party. Thus, it is quite possible that one spouse may end up with part of an inheritance received by the other spouse.

4. Are all Inheritances Treated Equally?

Inheritances can, of course, take many different forms, and the particular form of an inheritance may have a bearing upon how the court regards it when considering a financial remedies claim, and whether it will be used to meet a party’s needs.

We will not dwell on this for long, as it would be quite impossible to categorise inheritances that may or may not be used to meet needs, and in any event those that may not are probably quite few.

However, the situation was summarised by Mr Justice Munby (as he then was), in a case he dealt with back in 2004. Pointing out that the nature and value of the inheritance, and the time when, and circumstances in which, it was acquired, are relevant, he said:

“There is inherited property and inherited property. Sometimes, … the fact that certain property was inherited will count for little … On other occasions the fact may be of the greatest significance. Fairness may require quite a different approach if the inheritance is a pecuniary legacy that accrues during the marriage than if the inheritance is a landed estate that has been within one spouse’s family for generations and has been brought into the marriage with an expectation that it will be retained … for future generations.”

5. What About Future Inheritances?

Inheritances will be taken into account by the court if they have been received by one party, or if they will definitely be shortly received by a party because the benefactor has died, and it is just a matter of their estate being dealt with.

Any future inheritance that a party might receive will usually not be taken into account, as it is uncertain. It is uncertain because no one usually knows when the benefactor will die (assets that may not be acquired until long into the future will obviously be of no immediate use to a party), and in any event the benefactor may no longer have the asset when they die, or may decide to leave it to someone else.

But notwithstanding this the court can take into account any assets that a party is likely to have in the foreseeable future, and so it is possible that a future inheritance could be taken into account.

An example of a case where this was argued occurred in 2017, when the wife, a Saudi national, was certain (under Saudi law) to receive a huge inheritance from her vastly wealthy father. At first instance, the court decided that the inheritance was a resource that she was likely to have in the foreseeable future. The wife successfully appealed against the award she received, but the Court of Appeal did accept that the inheritance was undoubtably a resource, albeit one that (according to actuarial tables) the wife may not receive for 16-plus years.

6. Common Misconceptions about Inheritances

As with almost any issue that may arise on divorce, inheritances can be the subject of myths and misconceptions. Here are three of the most common:

Myth 1: “Inheritance is 100% immune from divorce claims.” Wrong. As we have seen above, the court may keep inheritances separate from the divorce settlement, but it may also utilise an inheritance to meet the other party’s needs. In the end, needs always trump the origin of the asset.

Myth 2: “If I receive an inheritance after separation, my ex can’t touch it.” Wrong. It doesn’t matter when the inheritance is received. The court can utilise an inheritance received after separation to meet the other party’s needs. Only once all financial claims have come to an end, i.e. by being dismissed by court order and the divorce finalised, is an inheritance ‘safe’ from a claim. 

Myth 3: “Future inheritances will automatically be split 50/50.” Wrong again. As we have also seen, future expectancies from relatives are generally ignored as too uncertain, unless the benefactor has died, and receipt is imminent.

7. Can I Protect My Inheritance on Divorce?

In general, it is not possible to prevent a court from making the order that it wants to make. It is therefore not possible to completely protect an inheritance on divorce.

However, there are (at least) two matters that can be considered by anyone wishing to protect an inheritance:

Keep Inheritances Separate: As we saw earlier, inheritances can be ‘matrimonialised’, by being mixed with matrimonial property. Anyone wishing to preserve an inheritance should, therefore, ensure that it is kept separate from matrimonial property.

Pre/Post-Nuptial Agreements: Another option for anyone wishing to preserve an inheritance is to enter into a nuptial agreement (pre-nuptial if before the marriage, post-nuptial after), stating that the inheritance should remain their property on divorce. It should be noted, however, that under the law as it stands at present the court is not bound to uphold a nuptial agreement, if it considers that to do so would be unfair.

It would also obviously be possible to argue that the needs of the other party are such that it is not necessary to dip into non-matrimonial assets to meet those needs, although it would of course be for the court to decide whether this was the case.

8. Conclusion & Seeking Specialist Advice

It is important to understand that no two divorce cases are identical. Each case is decided upon its particular facts. Further, the judge in any case has a wide discretion as to what order they should make.

In view of these uncertainties, it is essential that anyone involved in a financial remedies case involving an inheritance, or anyone wishing to protect an inheritance, should seek the specialist advice of an expert family lawyer.

Walker Family Law’s team of specialist family lawyers can provide you with the expert help that you need. To speak with one of our lawyers, simply complete and submit the form, on this page.