Inheritance and Divorce

Inheritance and Divorce

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

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 3 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:

  • When the inheritance was received; 
  • How long the couple were married; 
  • The size of the inheritance and if it was used to benefit the marriage or family; 
  • The financial needs of both parties; 
  • The needs of the family, especially where there are minor children, will be the overriding consideration and if the only way to meet those needs is by transferring inherited assets or assets deriving from them, to the other party, the Court may do this.

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.

This case involved a couple with assets exceeding £4.5m which was deemed more than either needs for their reasonable requirements.

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.

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