What happens to my inheritance if i divorce? BLM answers

Today on the seventh day of #12DaysOfChristmas #12DaysOfFamilyLaw blog series, we discuss...  

What happens to my inheritances if I divorce?

It is perhaps understandable that individuals or parties to a relationship may be concerned about what happens to any inheritance they receive before or during a marriage or civil partnership especially if it is from a close family member on “their side” of the family. Both north and south of the border, each case in which this issue arises needs to be carefully considered because outcomes in this area are often fact-specific. Making contact with a family law solicitor before, during and, if the worse happens, after separation on matters of inheritance is a very good idea which could save both time and money.

England and Wales

Identifying
When considering the financial division of assets on divorce, the courts need to identify the matrimonial and non-matrimonial property. Matrimonial property is property acquired during the marriage by the labours or endeavours of one or both parties. This usually includes the family home regardless of when or how or by which party it was acquired. Non-matrimonial property is property that has been acquired by one of the parties outside of the marriage and can include inheritances, gifts and property which either party brings into the marriage with them.

Distributing
Once the courts have identified the matrimonial and non-matrimonial property, they then need to distribute it. Matrimonial property is likely to be shared equally between the parties. Non-matrimonial property is likely - especially when the marriage is short - to be retained by the contributor or shared unequally in favour of the contributor on the basis that it represents an unmatched contribution from them.

However, the distinction between matrimonial and non-matrimonial property will carry little weight, if any weight at all, in a case where the parties’ financial needs cannot be met without resort to non-matrimonial property because needs take priority. The distinction may also carry less weight if the non-matrimonial property was acquired many years previously or has been intermingled with other matrimonial property during the marriage, for example, if inheritance monies were used to purchase a property in joint names or were moved into a joint account.

In short, the court’s approach to non-matrimonial property is not defined by one clear rule. The court will consider all of the circumstances of the case before deciding on a “fair” distribution. Fairness, with a focus on needs, is the law’s overarching objective in this area.

Inheriting in the future
The court rarely takes into account prospective future inheritances but if, for example, a large inheritance is imminent, the court might adjourn proceedings until the inheritance is available for consideration. Further, if one party receives a substantial inheritance after the court has made a final order, the other party may make a further application to the court on the basis that a significant unexpected event had happened such as to invalidate the basis on which the earlier order was made (a so-called “Barder” event, named after a famous case in this area).

Scotland

Exclusion
The Family Law (Scotland) Act 1985 specifically excludes from the definition of matrimonial property any property acquired by way of gift or succession (inheritance) from a third party.  Matrimonial property is defined as all property belonging to the parties or either of them at the date of separation which was acquired by them or either of them from their income or efforts during the marriage.

Conversion
However, if money gifted or inherited before or during a marriage is used to buy a new asset during the marriage then that new asset is matrimonial property. In this way, an inheritance or gift may be “converted” to become matrimonial property.

Source of funds
Scots law requires the “fair sharing” of matrimonial property on divorce. Fair sharing means equal sharing unless a judge finds that there are “special circumstances” sufficient to justify a departure of the default position of equal sharing. One of the possible special circumstances listed in the Scottish legislation concerns the “source of funds or assets used to acquire any of the matrimonial property”. So, if it can be proved that an inheritance to one party was used to buy matrimonial property then the court might take the source of the funds into account when deciding how to divide the overall assets. 

In practice, extensive enquiries are often required - and, in some cases, a forensic analysis of parties’ bank statements and external paperwork from other advisors such as conveyancing solicitors or financial advisers - before a “source of funds” argument can be made. Even then, it can be difficult to properly disentangle matters and a robust “paper trail” is normally needed. Ultimately, the decision is a discretionary one for the court and the outcome will often depend on the particular facts and circumstances of the case.  

Minute of Agreement
One way to try to “ring-fence” an inheritance would be for the parties to enter into a Minute of Agreement, formally acknowledging the fact of the inheritance, whether it was used to buy something else (and, if so, what) and whether the thing bought is to be excluded from the matrimonial property in the event of a separation. Courts will often give effect to, or at least take into account, such agreements assuming that neither party was coerced into signing them. There is, though, no guarantee that such an agreement would always be upheld in court in this type of case.

Overall, UK wide

For the reasons given, cases in this area can be complex with outcomes depending on the specific set of circumstances. To try to reduce the potential for future complexity, it makes sense to speak to a family law solicitor before, during and, if the worst happens, after separation about matters of inheritance. A pre-nuptial agreement before the marriage, a formal agreement during the marriage, or a post-nuptial agreement shortly after separation could save both time and money in the long run.

To read the previous blogs in our 12 Days of Christmas series, please click on the links below:

Day 1: Self-care tips during a divorce

Day 2: Why you need a Will

Day 3: Full financial disclosure: England & WalesScotland

Day 4: Are pre-nuptial agreements legally binding?

Day 5: Christmas bubbles and childcare arrangements during the COVID-19 crisis: Scotland

Day 6: How much does a divorce cost? England & Wales; Scotland

Disclaimer: This content does not present a complete or comprehensive statement of law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of BLM. Specialist legal advice should always be sought in any particular case.

 

Who to contact

Caroline
Gillespie

Partner and Head of Family Law, Scotland , Glasgow

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