Property Settlement and Inheritance Misconceptions

A common misconception amongst people who are going through a property settlement is that property, in particular inheritances, can automatically fall into a ‘protected category’ and are separate to the asset pool available for distribution.

So how is an inheritance treated in property settlement?

Nicholson CJ, Nygh and Tolcon JJ addressed the issue of whether inheritances should be treated different from any other property in which parties have an interest in the case of Bonnici[1].  The answer, is that it must be assessed on a case by case basis and depend on the circumstances of that particular case.

In assessing matters on their individual facts and circumstances, largely the deciding factor will often relate to the timing of receipt of the inheritance in question or the impact that the inheritance has on the size of the asset pool available for distribution.


Prior to or at the commencement of the relationship

An inheritance received by a party prior to the relationship or around the time of commencement of the relationship will be considered an initial contribution of that party.  The value of that inheritance is not separated from the asset pool and provided back to that party in addition to their entitlements to the balance of the asset pool, but rather the value of the inheritance and how it was applied is taken into account when determining the entitlements of that party.    In some cases however, and again depending on how that inheritance is applied, the impact of the inheritance may be diminished by subsequent contributions during the relationship, particularly in long relationships.

Accordingly, some inheritances received by way of an initial contribution may have little to no adjusting impact on a party’s entitlements.

During the relationship

Provided the inheritance is applied for the benefit of both parties, ie towards the purchase or improvement of a former matrimonial home, generally inheritances received by a party during the relationship are treated as a financial contribution by the receiving party to the joint assets.

Late in the relationship or following separation

Except in unusual circumstances, a party could not be regarded as significantly contributing towards the inheritance received so late in a relationship and certainly not after the parties had separated.  Therefore it is possible that a late inheritance may be quarantined from the balance of the asset pool available for distribution or alternatively two asset pools may be established.

In the event that two pools are established, one containing the inheritance (pool 1) and the other the balance of the assets pool available for distribution between the parties (pool 2) it allows either:

  • the pools to be split at different percentages, depending on the contributions made by each party to each pool; or
  • pool 2 to be distributed depending on the parties entitlements and pool 1 is available to be used to make any adjustments necessary, in the event that pool 2 does not contain sufficient funds for a just and equitable split between the parties.  The second approach is more likely in the event of a smaller asset pool (see size of asset pool below).

Examples of the exception circumstances include events such as the care of the Testator prior to death or particular services provided to the Testator to protect one’s property by the non-related or the party not due to receive the inheritance, on the understanding that these services will be accounted for following the Testator’s death.

The link between contributions such as homemaker or other contributions such as those listed above and the late receipt of an inheritance could be demonstrated in the following four ways:

  • a contribution made by a non-related party for the care of the others spouse’s family member (the Testator).  In the matter of Heath[2] it was held that wife’s “efforts” towards the care of the Husband’s elderly parents went towards the “acquisition of the exception” of the Husband’s inheritance;
  • a party’s contribution added value towards the Testators property, which was subject to the inheritance prior to the Testator’s death.  In the matter of De Angelis[3] held that the Husband’s contributions to the maintenance and improvement to properties that were held by the Wife’s mother and Aunt, which formed part of the inheritance, were to be treated as a contribution under section 75(2);
  • a party may have a homemaker contribution in the content of the parties shared expectations of the inheritance  (James[4]); and finally
  • a party can seek to show a tangible contribution after an inheritance is received by way of maintenance or improvement to real property.

An inheritance bequeathed after separation, however not yet received will be classified as a financial resource of that party.  This is because the funds are not yet available for distribution but their arrival for the benefit of the receiving party is imminent and therefore that party will have the benefit of using those funds to meet the costs of their future needs, whereas the non-receiving party does not.   The value of this benefit can often be determined and included when considering each party’s entitlements to the division of the asset pool available and may increase the non-receiving party’s entitlements.

Short relationships

What is the relationship is considered ‘short’ in nature, does this change the way an inheritance could be treated?

Cases law suggests that in a short relationship, inheritance is relevant primarily to section 75(2) factors.  “the fact that the bulk of the assets of the inheriting spouse constitute an inheritance should have little or no relevance in considering the various s75(2) factors, if property other than the inheritance were not available.”[5]

Size of Asset pool

As discussed above, the size of the asset pool available for distribution could result in a change in the way a late inheritance may otherwise be dealt with at property settlement. If the asset pool available for distribution, is minimal in comparison to the inheritance received, and a division of the asset pool, excluding the inheritance, would otherwise result in an unjust or inequitable division of the asset pool when considering the parties contributions, a late inheritance may be included in or used to adjust the asset pool available for distribution.

In the case of Bonnici the parties had no other assets to speak of, available for distribution other than the Husband’s inheritance.  The Court however was satisfied that the Wife had made the greater contribution as parent and homemaker and therefore, it would be just and equitable for her to receive an adjustment for those contributions from the inheritance of the Husband.

Had the asset pool in Bonnici been a larger pool with ample funds available for distribution to the wife satisfy her entitlements, then the fact of a recently required inheritance would likely have resulted in the inheritances being treated as an entitlement of the Husband.

For legal advice specific to your matter and to see how your inheritance is likely to be treated in property settlement contact our Family Law Team at Kott Gunning Lawyers on (08) 9321 3755.

The information published on this website is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.


[1] Bonnici and Bonnici [1992] FLC 92-272 at 79,020.

[2] Heath and Heath; Westpc Banking Corporation, Intervener [1983] FLC 91-362

[3] De Angelis and De Angelis [2003] FLC 93-133

[4]James and James [1978] FLC 90-487

[5] Figgins [2002] FLC 93-122, Nicholson CJ and Buckley J at 84