Inheritance and Divorce

Are you worried that an inheritance you received will be taken into account in your financial settlement?

Each divorce is decided on a case-by-case basis with the courts giving weight to the facts and circumstances of each case.

That said, under the Matrimonial Causes Act 1973, the first thing that the courts will look at is the needs of each party.

How is the family home divided in a divorce settlement?

The matrimonial home is most likely to be the most significant financial asset considered in a divorce settlement. As with other assets, there are many factors depending on the individual circumstances of the parties involved that will determine the outcome of how your house will be divided.

Common ways for this to be resolved include:

• One spouse can buy out the others’ share.
• The house can be sold, and the proceeds shared between both parties.
• Transfer part of the property value from one party to the other with the person giving up their share of ownership rights but keeping a stake in the property or receiving a lump sum.
• Agreeing to wait until any children have reached the age of 18 before selling the property.

Look at this example: a wife inherited a property, and the couple moved into that house, so that it became their family home, there would be a presumption that the house has become matrimonial property and that its value should be divided equally between them. That presumption would strengthen over time.

If, as another example, the wife inherited an interest in a property after the parties had separated, that would almost certainly be non-matrimonial property.

Now supposing the wife inherited one third of her mother’s estate, which comprised a house and a substantial amount of cash, and she received the cash during the marriage.

She used some of the cash for the benefit of the family, by paying for holidays, improvements to the family home and generally supplementing their income.

The pot of cash might be deemed to have become matrimonial by virtue of it having been “mingled” with the family finances.

As matrimonial money, it would be subject to the presumption of equality or the “sharing principle”.

On the other hand, the wife’s interest in her late mother’s house is never mingled. They never live in it, nor derive any benefit from it.

Subject to the matrimonial assets being sufficient to meet both parties’ needs, that interest will remain non-matrimonial, and will not be subject to the sharing principle.

The advice is simple in these circumstances: avoid mingling your inheritance with the matrimonial finances. Keep it separate. Keep cash in an account in your sole name and avoid using it for family purposes.

Don’t live or holiday in inherited properties. If you receive rent from such properties, have the rental income paid into a separate account in your name. This advice applies whether you receive your inheritance before, during or after the marriage.

Here are key questions that you need to consider when looking to protect inheritance from being shared with your spouse.

Warning: Before we discuss inheritance and divorce, it is important to emphasize that divorce is not the same as financial proceedings.

If you get divorced, but do not create a financial agreement or Court order, then you might be open to a claim in the future from your ex-spouse.

It is vital to make sure that you deal with finances at the same time as dealing with your divorce.

If you are divorced, but never dealt with the finances or property, contact us urgently.

Financial proceedings can be negotiated between couples and their solicitors, but sometimes will go to Court if the couple cannot agree.

The Courts or the solicitors involved will divide assets into two pots: ‘matrimonial’ and ‘non-matrimonial’. Everything in the matrimonial pot will be divided between the two parties as part of the financial agreement.

If an asset, such as a property, was inherited before the marriage, it may be included in the matrimonial pot.

This will depend on factors such as:

• How much the inherited assets were valued at? The greater the value, the more likely they are to be considered.
• When the assets had been inherited? If these had been inherited some time ago, it more likely that they would be treated as matrimonial assets. Those acquired more recently may be able to be excluded from the pot of joint assets.
• How the inheritance was used? Was it put into the family home or set up a business? Was it left as savings? If the money has been kept separately, it may be possible to argue it is not matrimonial money and should be excluded from the matrimonial pot. If it has been used jointly or to maintain a particular lifestyle it will be harder to argue that the money should be not as matrimonial money.
• How long is the marriage? The longer the marriage, the more likely such assets would be considered joint assets and be divided. If it is a short marriage, it may be easier to argue the inheritance should be ‘ring fenced’ and excluded from the negotiations.
• The needs of each person. If needs can only be met by using the inherited assets, it will be harder to argue they should not be included.
• Commonly one person will seek to argue that the other is about to receive an inheritance or will benefit in the future from an inheritance. As a general rule, future inheritances will be excluded from negotiations unless they are worth a significant sum. If one person is about to inherit from someone who has recently died, it may be easier to argue that the inheritance should not be included in the matrimonial pot.

Solicitors and Courts look to make sure that both spouses and their children are able to maintain the same standard of living as during the marriage.

It might be deemed that an asset inherited before the marriage should be treated as matrimonial because it has been used in the marriage, such as a property that has become the matrimonial home. Assets might also be included to meet both parties’ financial needs.

If you inherited assets during your marriage, there is a high likelihood that the Court would consider them part of the matrimonial pot. You might be able to prevent this by creating a post-nuptial agreement to ring-fence assets.

Inherited assets received shortly before the breakdown of the marriage are less likely to be included in the matrimonial assets for division, depending on whether the other assets are sufficient to meet the couple’s or family’s future needs.

The only way to know if your inheritance is likely to be included in the financial settlement is by speaking to lawyer.

White v White is an English family law decision by the House of Lords, and a landmark case in redistribution of finances as well as property on divorce.

Landmark cases are important because they change the way the constitution is interpreted – decisions made by the Supreme Court are referred to and influence how judges’ rule in new cases.

What principle did the House of Lords reject in White v White? The landmark case involved a couple who were granted a divorce in December 1995 and had assets exceeding £4.5m which was deemed more than needs for their reasonable requirements.

During the case of White v White, the following rationale was stated:

When considering the division of the matrimonial pot, inherited wealth (considered ‘non-matrimonial property’) will be treated differently to assets acquired through work, property, investment, and business endeavours during the course of the marriage (called ‘matrimonial property’) in any divorce settlement. The court acknowledged the view, widely but not universally held, that:

“Property acquired before marriage and inherited property acquired during marriage come from a source wholly external to the marriage. In fairness, where this property still exists, the spouse to whom it was given should be allowed to keep it. Conversely, the other spouse has a weaker claim to such property than he or she may have regarding matrimonial property.”

It was held that the absence of financial need did not mean departing from a more generous settlement for an applicant in big money cases.

This, therefore, enables the courts to make settlements reflecting the wealth of the parties, and not just their needs and requirements.

It is clear from Lord Nicholls’ leading speech that he intended much of what he said to apply to all matrimonial financial proceedings, not just big money ones.

He said that in all cases, regardless of division of assets, a judge would always be well advised to check his tentative views (on distribution of assets) against the “yardstick of equality of division”.

This was not to introduce a presumption of equality in all cases, but “to ensure the absence of discrimination”, for instance, between a wage earner, and a child-carer, thereby recognising the non-financial contribution of the parent caring for children.