Inheritances in family law

An elderly couple reviewing and signing documents in a lawyer or financial advisor's office.

A recent judgment of the Federal Circuit and Family Court of Australia considered the treatment of inheritances in the context of property settlement proceedings.

In the case of Stella & Stella1, Justice Strum considered how an inheritance received from the husband's grandmother just prior to the parties' separation should be divided between the husband and the wife.

Over the course of the parties' long marriage, the wife developed a close relationship with the husband's grandmother. The wife gave evidence that the grandmother visited her and the children several times a year, that they enjoyed holidays together and that she confided in her throughout the relationship as to her and the husband's marital difficulties, including financial difficulties and family violence.

This close relationship was directly relevant to how the court ultimately treated the inheritance. The grandmother bequeathed her estate in equal shares to four people, including the husband and the wife. The wife was described in the grandmother's will as her "granddaughter-in-law", suggesting the grandmother's intention to treat all four beneficiaries, including the husband and the wife, equally.

Additionally, the grandmother gifted the wife approximately $975,000 together with some jewellery during her lifetime. These gifts were made for birthdays and Christmas, and on occasions when the wife needed "emergency funds".

Given the specific wording of the grandmother's will, Justice Strum noted it was significant she had not specifically bequeathed one half of her estate to the husband and the wife jointly, but rather, had specifically named her granddaughter-in-law as a quarter beneficiary.

The husband contended that the wife's inheritance was a financial contribution made by him, as the wife only received the inheritance by virtue of being married to him. The court, however, disagreed and noted the clear intention of the grandmother was to benefit both the husband and the wife individually because of the separate bequests to each of them. The wife's inheritance was therefore held to be a contribution made by her very late in the marriage, to which the husband made no contribution. Similarly, the husband's inheritance was held to be a contribution made by him, late in the marriage, without contribution by the wife.

In those circumstances, the court held that it was not just and equitable to deal with the inherited assets. Each party simply retained their own inheritances, with the balance of the matrimonial assets being divided between the parties.

Key takeaways

The treatment of inheritances in property settlements, particularly those received late in a relationship or post separation, can be controversial. This case is an important reminder that every family law matter will depend on its own unique set of facts and circumstances and that there can be no one-size-fits-all approach as to how inheritances are dealt with.

1 [2023] Fed CFam C1F 1092

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