Inheritance and Divorce – How to protect your Inheritance

Inheritance on divorce can be a tricky hurdle when dealing with everything a divorce throws up. Agreeing on your financial settlement is often one of the most difficult aspects of divorce and disagreements on how the finances should be divided, can often result in the divorce process stretching out over months, or even years.

When discussing inheritance on divorce with clients, a common concern for many clients is if one spouse has the right to a share of the other spouse’s inheritance.

The financial side of a divorce is often one of the issues that keeps divorcing couples awake at night, especially if money is tight. Many people feel that things that are inherited from their loved ones should be excluded from the financial settlement, because they are assets or finances that were specifically passed down to them, on the death of another person.

However, this is often not the case. In this insight, we will take a look at how your inheritance may be regarded by the family courts, when it comes to deciding your financial settlement upon divorce.

What do the courts consider when deciding on a suitable financial settlement for each party upon divorce?

The main consideration of the courts is the welfare of any children. Judges may also take into account other factors, such as the length of the marriage and the financial needs of each spouse.

The courts will also include any property or other financial resources that either you or your spouse has now, or it’s likely that you will take possession of in the foreseeable future.

Are inherited assets part of these financial resources?

Assets that are inherited can form part of this ‘pot’ and can be divided as such, especially if it is necessary to do so to meet the needs of your spouse.

What about if my spouse’s needs are met through other finances/assets?

When it comes to inherited property, a principle established in case law says that inherited property and ‘matrimonial’ property should not be treated exactly the same. If your spouse’s needs can be met through other means, a court may consider factors, such as how long the inherited property has been in the family, when making its decision about how your financial settlement will look.

Do courts take into account possible future inheritance?

Generally, people will not be absolutely sure that they will be receiving inheritance in the future. This means that courts rarely attach as much weight to future inheritance, as they do to inheritance already received during your marriage.

How can I ensure my inheritance is safe when I divorce?

When you get divorced you must agree a fair financial settlement with your spouse. It is important that this agreement is documented as a legally binding Consent order and approved by a family court.

A Consent Order is a legally binding document that describes how property, pensions, savings and debts will be divided between husband and wife on divorce.

It also prevents your ex from making financial claims against you in the future if you make money from property investment or receive an inheritance or a lottery win.

A pre (before marriage) or post (after marriage) nuptial agreement, is a good way to protect your inheritance (and indeed many other things).

Although pre nuptial and post nuptial agreements are not legally enforceable, a judge must take them into consideration. In order to stand the best chance of being upheld by a court, your pre nuptial or post nuptial agreement must meet various criteria, including both parties having independent legal advice well in advance before they sign and full financial disclosure by both you and your spouse.

Inheritance is taken into account by judges when they are deciding on a financial settlement upon divorce. By planning in advance and both you and your spouse signing a pre nuptial or post nuptial agreement, you can state what you would like to happen to your inheritance (within the boundaries of the law).

Matrimonial assets and non-matrimonial assets

Assets that are acquired during the marriage  are known as matrimonial assets. These usually include any savings, pensions and property.  The starting point for the courts, is that the matrimonial assets of a divorcing couple should be equally divided.  Assets brought into the marriage by one party, such as an inheritance, could be considered a non-matrimonial asset and may be treated as such.

However, when a judge is looking at how finances are to be divided upon divorce, his/her primary concern will be making sure that a family’s needs are met. This means, that if necessary, a non-matrimonial asset may have to be shared to meet the family’s needs.

Are inheritances always non-matrimonial assets?

In short, the answer is no.

If, for example, you inherited some money before you were married, then after you were married you used your inheritance to buy the family home, this money could be seen as a matrimonial asset and divided as such.

Even if you always kept your inheritance very separate, you could still have to share it with your spouse when you divorce, if a judge considers that this is necessary for the needs of the family to be met.

What about my future inheritance?

If you are expecting an inheritance after you divorce, this will not normally be part of any financial settlement.

It is recommended that you get any financial settlement upon divorce made into a consent order by the courts. If you don’t, you run the risk of your spouse lodging a claim many years later. Back in 2015, a woman won the right to lodge a claim against her ex-husband (who had become a millionaire) more than 30 years after her marriage had ended.

Is it possible to protect my inheritance?

Pre-nuptial agreements, more commonly known as pre-nups, enable couples who are about to get married to state how they would like to divide up their assets, should their relationship ever break down in the future.

Although pre-nuptial agreements are not legally binding in England and Wales, judge’s will generally take them into account when making decisions with regards to the financial settlement, as long as they have been entered into properly and the needs of family are met.

If you are already married, you could consider a post-nuptial agreement.

It is important to get specialist legal advice well in advance to make sure that your agreement stands the best chance of being upheld by a court.

How to protect your inheritance

When dealing with inheritance and divorce, a common concern clients come to us with is whether or not one spouse has the right to a share of the other spouse’s inheritance.

Many people feel that the sharing of inheritance in divorce settlements simply should not happen, because these are assets or finances that were specifically passed down to them, following the death of a relative or friend.

However, when it comes to inheritance and divorce, and inheritance in divorce settlements in particular, it is often not that simple. In this insight, we discuss inheritance and divorce in general and take a look at how to protect your inheritance.

Is inheritance included in the divorce settlement?

Assets that are inherited can form part of the marital ‘pot’ and can be divided as such, especially if it is necessary to do so in order to meet the needs of your spouse.

When it comes to inherited property, a principle established in case law says that inherited property and ‘matrimonial’ property should not be treated exactly the same. If your spouse’s needs can be met through other means, a court may consider factors, such as how long the inherited property has been in the family, when making its decision about how your financial settlement will look.

Is future inheritance considered in divorce settlement?

One of the issues with inheritance and divorce is that people will not be absolutely sure that they will be receiving inheritance in the future. This means that when it comes to inheritance in divorce settlements, courts rarely attach as much weight to future inheritance, as they do to inheritance already received during your marriage.

When looking at how to protect your inheritance, it’s important to bear in mind that if you are expecting an inheritance after you divorce, this will not normally be part of any financial settlement. However, inheritance and divorce, and in particular inheritance in divorce settlements, can be an extremely complex area of law, so it is highly recommended that you seek specialist legal advice.

How to protect your inheritance

How to protect your inheritance is no different to protecting your other assets after divorce.

When you get divorced, you should attempt to agree a fair financial settlement with your spouse (if you are unable to do this either between yourselves or with the aid of other methods, such as mediation, you may have to ask a judge to decide your settlement for you).

It is important that this agreement is documented as a legally binding Consent Order and approved by a family court.

A Consent Order is a legally binding document that describes how property, pensions, savings and debts will be divided between husband and wife on divorce. It also prevents your ex from making financial claims against you in the future if you make money from property investment or receive an inheritance or a lottery win.

If you’re wondering how to protect your inheritance before marriage, a prenuptial agreement may be worth considering. By planning in advance, and both you and your spouse signing a prenuptial or post-nuptial agreement, you can work out how to protect your inheritance in case your marriage does not work out the way you planned.

Is inheritance a marital asset?

Assets that are acquired during the marriage are known as matrimonial assets. These usually include any savings, pensions and property. The starting point for the courts, is that the matrimonial assets of a divorcing couple should be equally divided. Assets brought into the marriage by one party, such as an inheritance, could be considered a non-matrimonial asset and may be treated as such.

However, when a judge is looking at how finances are to be divided upon divorce, his/her primary concern will be making sure that a family’s needs are met. This means that if necessary, a non-matrimonial asset may have to be shared to meet the family’s needs.

Inheritance and divorce, or rather inheritance in divorce settlements, is often not a simple matter. When it comes to inheritance in divorce settlements, inheritance is not always considered a non-matrimonial asset.

If, for example, you inherited some money before you were married, then after you were married you used your inheritance to buy the family home, this money could be seen as a matrimonial asset and divided as such.

Even if you always kept your inheritance very separate, you could still have to share it with your spouse when you divorce, if a judge considers that this is necessary for the needs of the family to be met.

So as you can see, there is no one-size-fits-all inheritance and divorce solution. How or even if inheritance in divorce settlements is divided, can change depending on your individual circumstances, making it vital to seek independent legal advice to suit your situation.

For more information on inheritance on divorce please visit our Legal Library.

Contact us to see how we can help you with inheritance on divorce

For more information on inheritance on divorce call our team on 0845 862 5001 or email mail@austinkemp.co.uk.

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29th December 2017