It is not uncommon for a party to a marriage or de facto relationship to receive an inheritance either before, during or after their relationship. Put simply, unless the parties entered into a Financial Agreement (made pursuant to the Family Law Act 1975 (Cth)) setting out how any inheritance would be dealt with in the event of separation, then:
• the inheritance is not excluded or otherwise quarantined from the assets and liabilities to be divided between spouses following separation; and
• the amount of the inheritance is not allocated back to the spouse who received it.
How a Court determines a split of assets between spouses?
The following 4-step approach is applied by the Court:
1. Ascertain the current assets, superannuation, liabilities and financial resources of the parties
2. Assess the contributions (financial, non-financial, homemaking and parenting) of the parties at the commencement of, during and after their relationship
3. Assess the future needs of the parties (for example, who might have the care of infant children, any difference in the parties’ income earning capacities, the age and state of health of the parties)
4. Consider whether the proposed orders are just and equitable in all of the circumstances
What impact does it have?
How an inheritance is dealt with in the event of separation will generally involve consideration of the following:
• The timing and the length of the relationship
• The amount received
• How it was applied
• The financial circumstances of the parties at the time of the Court’s decision
The timing of the inheritance is important. For example, if a party received their inheritance in the early years of a 25-year relationship then depending upon the amount and how it was applied, the inheritance may not result in a significantly higher contributions assessment to the party who received it. This is because often during long relationships each spouse makes various financial, non-financial, homemaking and parenting contributions which can offset a financial contribution by way of an inheritance.
Conversely, if the inheritance was received late in the relationship or after separation or the parties were in a short-term relationship, then the party who received it will likely receive a higher contributions assessment.
The amount received will affect the Court’s ultimate determination. If modest in light of the parties’ combined net assets (for example a $50,000 inheritance compared to net assets of $1.5 million) then this may have little effect on the Court’s assessment of contributions. However, if the inheritance comprised $1 million of a $1.5 million property pool, then it is highly likely the contributions would be assessed in favour of the spouse who received the inheritance.
It will also be relevant for the Court to consider how the inheritance was applied. If it was used to fund family holidays or extravagant purchases and is no longer represented in the parties’ net assets, then it will carry less weight when assessing contributions compared to an inheritance which was used to purchase a family home or investment property, establish a share portfolio or contribute to superannuation and that asset/s still exists at the time of determination. It may also be relevant in the Court’s determination if the inherited funds are kept separate and not otherwise intermingled with the parties’ joint assets.
The financial circumstances of the parties at the time of any determination is also a relevant consideration, particularly if a spouse has received an inheritance following separation. For example, if the parties had net assets of $1 million and there was a post-separation inheritance of $500,000, a Court would not likely consider it just and equitable if one spouse received total net assets of $500,000 and the other spouse received the remainder plus the inheritance (total assets of $1,000,000). In that instance the Court may consider awarding the spouse without the inheritance a larger percentage of the net assets.
What if you are a beneficiary under a Will or Estate but the testator has not yet passed away?
This question often arises when a party or their spouse has a parent who is elderly or unwell. A future inheritance will generally only be taken into account by the Court if the testator’s death is imminent and there is evidence of that (for example, a medical report) and what entitlement the spouse might have in the testator’s estate. In that instance, the inheritance cannot be included in the assets to be divided between the parties but the Court can consider it at step 3 of the 4-step process in assessing the parties’ future needs.
How can an inheritance be protected?
As between spouses, the only way to protect an inheritance in the event of separation is to enter into a Financial Agreement pursuant to the Family Law Act 1975 (Cth). For a Financial Agreement to be binding it must meet specific requirements set out in the legislation, including that before signing the Agreement each party to the Agreement obtain independent legal advice as to:
• The effect of the agreement on the rights of that party; and
• The advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement
The terms of a Financial Agreement are tailored according to the individual circumstances of the case and most importantly, what agreement can be reached between the parties. A Financial Agreement can be entered into before, during or after a marriage or de facto relationship. Some options for a Financial Agreement are:
• Any assets (including an inheritance) a party has at the commencement of their relationship are excluded from any division of assets between them;
• Any assets (including an inheritance) a party acquires in their sole name during the relationship are excluded from any division of assets between them;
• Any inheritance received by a party is excluded in its’ entirety; or
• The Agreement specifies what portion of that inheritance the other spouse receives in the event of separation.
If you and your spouse have separated and there is the possibility you might receive an inheritance into the future it is important to finalise your property/financial settlement with your spouse as soon as possible (and before the death of the testator) and have any agreement reached formally documented in either Consent Orders filed in the Family Court of Australia or in a Financial Agreement. Provided your agreement is formally documented and there are no other grounds (such as fraud) on which the Order or Agreement can be set aside, then your spouse cannot later claim they are entitled to receive any portion of an inheritance you might receive into the future.
If a testator is concerned about whether any gift they leave to a beneficiary will be attacked in family law proceedings, then the testator might wish to consider whether there are any asset protection options available to them and make any changes to their Will and estate planning while they still have capacity to do so.
The change in the law and what you should be thinking about if going to court.
Imagine this situation – you and your ex were involved in lengthy and acrimonious Court litigation regarding parenting arrangements for your children. You submit a number of Affidavits to the Court setting out your evidence, essentially your version of events, what took place during your relationship, what has happened since separation and why you think your proposal is the best arrangement for your children. But it’s all okay – these are not public records and your children, family and friends will never know what is in these documents…right? Unfortunately not.
Rule 24.13 of the Family Law Rules 2004 provides that particular persons may search a Court record relating to a case and inspect and copy a document from those records. As you might expect, parties to a case and/or their lawyers are entitled to inspect the records, however the rule also provides that the Court may permit a person with a proper interest in the case, or in information obtainable from the court record in the case to inspect.
Who is a person with a proper interest? There is no set criteria or class of persons who automatically fall into this category. It is a matter for the Court to determine on a case by case basis. In previous cases, the following have been deemed a person with a proper interest:
- A new or former spouse of a party
- The other parent of children from a different relationship
- The Commissioner of Taxation
- The Commissioner of Police
- A fellow director and shareholder of a spouse’s entity
If the Court determines the person is one with a proper interest, then in considering whether to give the permission to access the records, the Court must also consider the following:
- The purpose for which access is sought
- Whether the access sought is reasonable for that purpose
- The need for security of court personnel, parties, children and witnesses
- Any limits or conditions that should be imposed on access to, or use of the court record
In a recent decision of Carter & Carter the Full Court of the Family Court permitted an adult child to inspect the Court file (which means all of the documents filed on behalf of any party to the proceedings) relating to his parents’ divorce and their contested parenting proceedings following their separation in 1976. When his parents first separated, Carter and his siblings lived with their mother. A few years later, Carter went to live with his father and his siblings remained with his mother. Carter wanted to better understand why those arrangements were made and why he was separated from his siblings. He had many questions which he thought could be answered from the court records, and also that if he had this understanding it may help with treatment and recovery of his mental illness.
Initially a Registrar of the Court refused Carter’s request, noting he did not have his parents’ consent to access the records. Carter appealed that decision. A Judge then ordered that Carter’s parents be notified of the case. Despite their estrangement, Carter’s parents subsequently consented to their son accessing the court records. However, consent of the parties to the case is only one factor for consideration, and it is ultimately a matter for the Court to grant permission.
The Judge decided Carter was a person with a proper interest, however only permitted Carter to inspect (not copy) the final consent orders (agreement) ultimately entered into between his parents, not all documents filed in the proceedings as he had sought. The Judge expressed concerns about:
- the benefit Carter would obtain from inspecting the file and that it was unlikely an inspection would provide the answers he was seeking (the Judge had already inspected the contents of the file);
- the impact the inspection might have on Carter’s mental health and wellbeing;
- the impact on Carter’s other siblings and his parents given the existing difficulties between the family; and
- the privacy to which the other family members were entitled.
Carter was not content with the Judge’s decision and appealed to the Full Court. On appeal, the Full Court determined that once a Court finds a person has a proper interest, the ultimate question is whether the access is reasonable, not whether the person will benefit from the access, and that Carter’s purpose for wanting to access the file was reasonable. One of the Judges of the Full Court also considered that “the question of whether children, who were the subject of proceedings and who are now well and truly adults, should be able to see what was said about them in respect of their best interests in proceedings which had that issue at their very heart, also involves an issue of principle”.
The effect of parental conflict and acrimonious litigation between parents can have a very serious impact on children, both at that time and later on in life. Carter was not the first and is unlikely to be the last child who seeks to inspect his parents’ file, looking for answers. Whether any future applications will be granted will depend entirely upon their circumstances and the discretion of the Judge. However, what does this mean for separating parents? How can you avoid details of your parenting dispute being revealed to your children into the future?
If you are involved in Court proceedings, be mindful of what is contained in your Affidavit or what you might say to a report writer. It can be easy, during a stressful and emotional time in your life, to make nasty and hurtful comments about your ex, or depict a version of events in your favour. However before you do this, take a step back and think about whether you would want your children’s happiness and wellbeing or your relationship with them compromised in 10, 20 or 30 years as a result of your children being able to read what their parents said about one another or about them all those years ago.
At Rostron Carlyle Rojas Lawyers we pride ourselves on assisting our clients and their former spouses to reach a resolution of their parenting matters without resorting to litigation in the Court. Outcomes that can be reached as a result of negotiations, family dispute resolution, counselling, family therapy and mediation involve less conflict between parents and often result in more child-focussed arrangements and a healthy co-parenting relationship between parents into the future.
If you require family law advice, please contact Renée Kinman, Senior Associate and Accredited Family Law Specialist on (07) 3009 8444 or firstname.lastname@example.org to arrange an initial consultation.
  FamCAFC 45
 Per Murphy J at paragraph 63