Divorce is never easy, and it becomes even more complicated when inherited assets come into play. If you have received or expect to receive an inheritance, understanding how divorce might affect it is crucial.
In this article, we look at whether your inheritance can be split 50-50. We also discuss what factors the court considers in inheritance cases. Finally, we explain how you can protect your inheritance from being divided in a divorce.
Will the inheritance be split 50-50?
A common concern is whether an inheritance will be split equally between spouses. The idea of a 50-50 division is often misunderstood.
The Matrimonial Causes Act 1973 gives the court the exclusive power to divide assets fairly. This does not necessarily mean a 50-50 split will occur. Instead, the court assesses whether splitting the inheritance is necessary to meet the “reasonable needs” of both parties.
“Reasonable needs” and Court discretion
The concept of “reasonable needs” is flexible. Factors like the couple’s standard of living during the marriage, the age and health of both parties, and the financial needs of any children take priority.
The court also examines income and earning capacity, which means that each divorce case is unique, and no one-size-fits-all rule applies.
Factors the Court considers in dividing inheritance
When determining whether to include an inheritance in the marital assets to be split, the court will consider:
The Value of the Inheritance: Significant inheritances may be treated differently than smaller amounts, especially if one party’s reasonable needs cannot be met without using these funds.
When the Inheritance Was Received: If the inheritance was received long before the marriage or well after separation, it is less likely to be included. However, inheritances acquired during the marriage are more at risk of being shared.
Length of the Marriage: The duration of the marriage plays a crucial role. A short marriage is less likely to lead to a claim on an inheritance compared to a long-term marriage, where finances have likely been deeply intermingled.
Mixing Inheritance with Marital Assets: If you placed inherited money into a joint account or used it to pay for family expenses, it might be deemed part of the marital pot. This is because it shows an intention for the inheritance to benefit the family.
For example, if you inherited a significant sum and used it to renovate the family home or pay off a shared mortgage, the court may conclude that you intended to share this asset. Consequently, your spouse may have a claim to it.
The case of Y v Y – Needs Needs Needs !
The case of Y v Y serves as a compelling example of how courts address inherited assets. In this case, the couple were married for around 26 years and they had 5 children together. The husband’s wealth came primarily from an inherited country estate.
Despite his arguments to protect his inheritance, the wife was awarded £8.74 million, which represented 32.5% of the inherited estate.
The ruling highlighted two key principles:
- The reasonable needs of the parties will always take precedence over any attempt to ring-fence inherited assets as non-matrimonial.
- The court can include an inheritance in the settlement if it’s “fair and justified” to meet the needs of the other party, particularly when children are involved or the financial settlement requires it.
This case illustrates that even a large inheritance might not be fully protected if one party’s needs cannot be met without it.
Is future inheritance considered?
Typically, future inheritance is not factored into divorce settlements. For instance, inheritance expected from a living relative is seen as too uncertain to be considered an asset. However, Section 25(2)(a) of the Matrimonial Causes Act 1973 allows the court to consider future financial resources if they are likely to materialise soon.
It’s important to finalise the divorce with a financial consent order. Without this legally binding agreement, your ex-spouse could potentially claim a share of your future inheritance. The consent order provides financial closure and protects any future inheritance from post-divorce claims.
How to protect your inheritance on Divorce
If you want to ensure your inheritance benefits your children and not your ex-spouse, there are strategic ways to protect it:
Pre-nuptial and Post-nuptial Agreements: These agreements can clearly define what happens to inherited assets in the event of a divorce. Courts are more willing to support these agreements if they are fair. Both parties should have independent legal advice. There must be no pressure or duress to enter the agreement. Both parties should also share complete financial information with each other.
Keep Inheritance Separate: The best way to prevent inheritance from becoming marital property is to keep it in a separate account and not mix it with joint marital assets. Avoid using it for shared expenses or making significant investments in jointly owned property.
Setting Up a Trust: Placing inheritance in a trust with your children as beneficiaries can shield it from divorce claims. Trusts offer an added layer of protection, ensuring your inheritance is preserved for future generations.
Conclusion
The treatment of inheritance in divorce is a complex area of family law. Courts in England and Wales have broad discretion to make fair and just financial settlements, often considering inheritance if it is necessary to meet the reasonable needs of both parties and any children.
Inheritances are not always included in the marital pot. However, some factors can change this. These factors include mingling assets and the length of the marriage.
Ultimately, if you’re facing divorce and have concerns about protecting your inheritance, consulting with a Family Law Solicitor is essential.
Please contact us today for a free no obligation discussion about your situation.
Please contact us today for a free no obligation discussion about your situation.
