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Once you have made the choice to separate, it is likely you have started the difficult process of deciding how to divide your assets. For most people, this process begins with a ‘yours’ and ‘mine’ approach, whereby you separate assets into certain baskets depending on who they belong to.

Regardless of your process, it is vital at this stage to receive legal advice to ascertain exactly what it is you are entitled to. It is possible what you want, and what you are entitled to, may be two very different realities.

How does the Court divide assets?

The Family Law Act gives the family courts broad discretion to make orders in relation to financial cases, including orders for dividing assets between parties. Whether you were married or de facto, the family courts undergo the same comprehensive assessment of your assets and liabilities and consider your interests in property held by each of you prior to the relationship, those gained during the relationship, and those following separation. Courts also consider the future needs of each party.

With this information, family courts paint a detailed picture of what assets and liabilities are available to you. This list of assets and liabilities is often called a ‘property pool’. Before separating your property pool, a Court must be satisfied it is ‘just and equitable’ to do so.

One relevant issue for many clients is the treatment of a prospective inheritance or an actual inheritance following separation. Clients want to know how that future injection of funds is treated in a property settlement and whether they, or their former partner, are entitled to a portion of the inheritance.

This conundrum was considered by the Federal Circuit Court of Australia in the case of Gilmartin & Gilmartin [2016] FCCA 3135 in a judgement delivered in December 2016.

That case concerned a 25 year relationship where the value of the property pool at separation was modest, comprising motor vehicles and minimal savings. There were two children of the relationship aged 23 and 17 at the time of judgement. The Wife argued that the Husband’s inheritance from his late mother’s estate ought to be included in the property pool for division between the parties.

The Court held it was appropriate to make an adjustment in property orders in favour of the Wife. In doing so it quoted the authority of Bonnici v Bonnici (1992) FLC 92-272. The Full Court in that case considered that property does not fall into a protected category merely because it is an inheritance. However, if there are ample funds available for a just settlement, then the inheritance would normally be treated as an entitlement of the party in question. The Court also found that except in ‘very unusual circumstances’ a party cannot be regarded as contributing significantly to an inheritance received very late in the relationship and certainly not after it has terminated.

The question then becomes, what constitutes ‘very unusual circumstances’.

In the case of Gilmartin, there was no evidence of the relationship between the Wife and the Husband’s mother. There was no assertion, for example, that the Wife contributed to the physical care of the Husband’s Mother prior to her death. In fact, for the last two years of the Husband’s Mother’s life, the parties had been separated.

Nonetheless, the Wife argued that ‘very unusual circumstances’ did exist in this case. The Court agreed, and found such circumstances were:

  • the absence of any other significant asset held by the parties;
  • the Wife's contribution as primary homemaker and caregiver during the course of the marriage;
  • the proceeds of sale of the former matrimonial home being used to partially repay a debt incurred by the Husband's family and the resultant protection of the Husband's Mother's own assets by that sale; and
  • that the Wife was a named beneficiary in the 2012 will of the Husband's Mother, despite a later will being made to remove her.

The Court accepted on that basis, in accordance the decision of Bonnici, that "very unusual circumstances" existed and therefore, the inheritance received after separation formed part of the property pool.

Gilmartin provides a useful indication of how an inheritance might be treated in property settlements. However, each family law case turns on its own facts and circumstances.

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