Divorce and Finances: Will I have to share my inheritance?
Many clients contemplating divorce ask whether they will have to share a current or future inheritance. The answer is that it depends.
Monies or assets inherited or gifted before or during a marriage, are not automatically excluded from the matrimonial pot. In other words, they are not automatically ring-fenced and may have to be shared when a couple divorce. Whether or not you will have to share your inheritance when you divorce depends on the specific circumstances of your case.
Whilst most divorces do not end up in court, in order to advise you as to an appropriate settlement, your solicitor will need to look at what approach the court may take if it were to make a decision for you. Their advice will be very specific to your individual circumstances, and there is no ‘one size fits all’ approach.
What is the court’s approach to inheritance?
The starting point is that inherited assets are ‘non-matrimonial’ and are therefore not subject to the sharing principle, i.e. the party who inherited the assets will get to keep them. However, in some circumstances where there are insufficient matrimonial assets to meet both parties’ reasonable needs, the court may consider it fair to redistribute inherited wealth.
In other circumstances, the inherited assets may have been mingled with matrimonial assets (those that have been acquired during the relationship as a consequence of joint endeavor). It may be the case that the inherited assets have been matrimonialised and that they are, by reason of this mingling, subject the sharing principle.
The sharing principle provides that the starting point is equal sharing but there are always exceptions to the rule.
The importance of meeting ‘needs’
Where the capital needs of the parties and any children cannot be met by an equal division of the matrimonial assets, the non-matrimonial assets may need to be shared, including inherited assets.
In contrast, where an equal division of matrimonial assets adequately provides for the needs of each party and any children, the general principle is that inherited wealth will not be shared.
Will future inheritances be considered?
Future inheritances are not taken into account by the court when determining financial claims on divorce as they are not a financial resource available to one or more of the parties at that time. Given that we cannot know what the future holds, it is impossible to quantify a future inheritance or predict when it might be received. It may be the case that the assets of a relative or friend from whom one is expecting to inherit are spent prior to the testator’s death e.g., on care home fees.
In some cases, where there is an expectation of a significant inheritance, the court may adjourn the lump sum or property claims of a party on divorce so that they can be dealt with at some point in the future, once the inheritance has been received.
Future inheritances can however be relevant to the issue of liquidity. For example, where one party is seeking a deferred sale of a property or a transfer of ownership, they may seek to rely on an anticipated future inheritance in support of their case that they will be able to buy out the other party’s interest.
What can I do to protect my inheritance from a claim by my spouse?
If you would like to protect an inheritance, you may wish to consider entering into a nuptial agreement (a pre-nuptial agreement and/or a post-nuptial agreement). This would not prevent the court from making an order on divorce that your inheritance be shared (where needs required it) but would strengthen your case against sharing.
If you do not want to share your inherited capital, it will be crucial that you do not mingle it with matrimonial assets. For example, do not use it to reduce the mortgage on a jointly owned property or to pay off joint debt. Keep it separate. And if you do invest it in joint or otherwise matrimonial assets, obtain written agreement from your spouse that they acknowledge that they have no interest in the inheritance. However, even with such an agreement, the court will retain the ultimate decision-making power as to what is to become of it on divorce.
If you expect to inherit money or assets in the future, you may also wish to consider appropriate trust planning.
At Herrington Carmichael we have extensive experience in advising on financial settlements and preparing and advising on pre-nuptial and post-nuptial agreements. If you would like assistance or further information, please contact us to speak to a member of our Family Team.
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