I have been asked this question several times during the past few months. The simple answer is – it depends. Because each case is unique, there is no definitive answer to the question. It can depend upon when the inheritance was received, how it has been put to use or the type of inheritance it is.
In a financial remedy case, the court starts by considering the Matrimonial Causes Act 1973, s25 (MCA 1973). This imposes a duty on the court to consider all the circumstances of a case and to reach a decision that is fair, which will be specific to the facts of each case.
When looking at what assets a couple has, the court considered them as either:
Non-matrimonial assets do not automatically go in the pot of assets to be divided. It may be possible to exclude them completely from the financial arrangement if you and your ex agree. However, if the remaining matrimonial assets are not enough to provide for the reasonable needs of both of you (and that is a flexible and subjective test taking into consideration your wealth and standard of living during the marriage etc.), then the court will take the non-matrimonial assets into account too.
In most cases, the main family home will be treated as a matrimonial asset. Assets can also move from non-matrimonial to matrimonial. If you received an inheritance during your marriage, the court will look to see how that was used before deciding how it should be dealt with. For example, if it was money held in a joint account that the whole family benefited from over time, the court may decide it has become joint property and should be available for dividing between you and your ex.
Neither Section 25 of the Matrimonial Causes Act 1973 or Schedule 5, Part 5 of the Civil Partnership Act 2004 (CPA 2004) refer the court specifically to the question of inherited assets or the parties’ inheritance prospects. However, the court will consider any inherited assets when making a final order under the headings of the parties “other financial resources” which one party has “or is likely to have in the foreseeable future” (Section 25(2)(a)), their contributions to the welfare of the family and ‘all the circumstances of the case’.
In some countries, there is an automatic legal right to inherit and in those cases the court may take a different view of this future benefit when splitting the assets.
In the 2000 case of White -v- White, Lord Nicholls stated that inherited assets were ‘one of the circumstances of the case.’ He also developed the concept of matrimonial as opposed to non-matrimonial property, but added that ‘in the ordinary course, inherited assets can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this inheritance’.
In practice, whether or not an asset is non-matrimonial is only likely to be of significance where there are sufficient remaining assets that can be used to meet the needs of the parties and any children. Where such needs can be met by the use of other resources, the court may give weight to the special nature of an inheritance.
Relevant matters to consider are the importance, nature and value of the inherited asset, as well as the time and circumstances in which it was acquired.
Distinctions have also been drawn between different types of inherited property; for example, money received from a relative in a Will during the course of the marriage/civil partnership might be treated differently to a landed estate that has been within one spouse’s family for generations. What is considered fair in each case will be different.
The 2006 case of Miller -v- Miller established that the parties’ matrimonial home should be treated as a matrimonial asset, even if it was brought into the marriage by only one of the parties.
The 2007 case of Charman -v- Charman clarified that the sharing principle could apply to inherited wealth and that the court should look at the parties’ needs, taking into account the nature of the inherited assets, whether those assets still exist or have been spent or converted into different assets, how long an asset was in the family and if there has been intermingling with marital assets.
In that case, the wife was awarded enough of a lump sum to rehouse herself in a quiet, safe area of London, to maintain the lifestyle she had been accustomed to.
The longer the inherited wealth has been enjoyed by the parties, the less the court has found it fair that it should be ring-fenced and used to meet the needs of only one of the parties.
In the 2012 case of Y v Y, a significant part of the couple’s assets were inherited. The Wife was awarded 32.5 percent of the couple’s net assets, the majority of which had been inherited by the husband. The court had to consider if the Wife’s needs required all the assets to be shared. The judge stated that the value of an asset and the lifestyle which it produces during the marriage, even if the asset is inherited, are relevant factors for the court when considering fairness.
The case law demonstrates that the outcome is very much fact-specific. For example, in the 2011 case of K-v- L, the couple had a very modest lifestyle. One spouse was given substantially less than 50% of net assets as that was considered sufficient, generous and fair to meet their needs.
The recent case of WX v HX (2021) serves as a good reminder of the importance of establishing the different types of property when dealing with financial remedy issues on divorce. This was a 33-year marriage and the non-matrimonial assets had been kept separate and not intermingled. They were not considered matrimonial, but there were sufficient matrimonial assets to meet needs, which enabled ring-fencing of the inherited wealth.
An actual inheritance received by a party is very different from the expectation of an inheritance while the putative donor is alive.
The Court must take into account prospective inheritances if they are resources that a party is likely to have in the foreseeable future. The question then is what is the ‘foreseeable future’.
How the Court chooses to proceed will depend upon a variety of factors. Generally, the Courts will be minded to seek finality when hearing a case. Case law suggests that for example, receiving a gratuity/military pension in five years was sufficiently proximate to be foreseeable for the purposes of a lump sum.
Inheritance that hasn’t yet been received, for example what might be anticipated from wealthy parents, is not usually considered. This is because benefactors live longer than expected or obtain new dependents, assets are used and Wills are changed.
There are several ways to do this:
If you are going through divorce proceedings, it is vital to consider entering into a consent order. This requires both parties to come to an agreement, which can be negotiated via solicitors or agreed between you regarding the financial aspects of the split. Once this is agreed, a consent order is drafted and sent to the court. Within the consent order, clauses relating to future inheritance and preventing future claims can be included.
Most people who are leaving someone an inheritance tend to want it to go to that person specifically. If there is the potential for claims on future legacies, think about trust and estate planning.
It is also becoming increasingly common for trustees who are distributing legacies from a trust to insist on a post-nuptial agreement being put in place before they will distribute the legacy to a married beneficiary.
Inheritance received before or during marriage
If your inheritance was received before you married, your ex-spouse may be entitled to make a claim if they benefitted from the inheritance during the marriage.
Inheritance received during the marriage will probably be classed as “joint property”.
This is particularly the case where any money was paid into a joint account or a property was transferred into joint names. The Court would assume that the inheritance was treated as a benefit for all the family, rather than for one person.
This situation may be prevented by entering into a pre-nuptial agreement prior to the marriage taking place, or a post-nuptial agreement after you’re married, which will help you ring-fence the inheritance from any future claims.
Drafting either a pre-nuptial (before getting married) or post-nuptial (after getting married) agreement explicitly excluding any inheritance might carry some weight with the court. Both pre and post-nuptial agreements are ways to protect your future inheritance and current assets. These agreements identify ownership of certain assets and highlight how the finances are to be dealt with after divorce.
It is important to note that pre-nuptial and post-nuptial agreements are not legally binding in the UK, although they will be considered by the court when looking at the finances of both parties, before and during the course of the marriage if the court considers the agreement is fair, was agreed to by both parties and that the party acting to their detriment, was not forced into signing it.
As with many things surrounding the divorce process, whether it will be necessary to share an inheritance with your ex-spouse is a matter for the court to decide and this will always include an assessment of what is fair in the individual circumstances of a case.
Alternatively, you could also consider asking the person bequeathing the legacy to look at trust or estate planning, which could help to protect it. This is likely to be more relevant for larger estates and legacies.
The short answer is Yes, if:
• Your spouse has not remarried or entered into a civil partnership
• You did not reach a formal financial settlement, enter into a consent order excluding future inheritance claims or obtain a clean break order
• The claim on the inheritance is made within six months of the Grant of Probate being obtained by the executors.
They would claim under the Inheritance (Provision for Family and Dependants) Act 1975. Spouses who were receiving spousal maintenance at the time their ex-spouse dies are considered to be a dependant and could therefore claim under the legislation. This is why it is so important to protect your estate and any future inheritance you may receive.
In a case where resources are insufficient to meet both parties’ needs, the fact that part of those resources were inherited will carry little weight. Needs (for capital and/or income) must be met. Whether inherited wealth should be left out of account in any particular case must depend upon the facts and the court’s assessment of needs and fairness in each case. This means that sometimes the fact that the property was inherited might count for little, on other occasions that fact might be of the greatest significance.
What is fair will depend upon all the circumstances and this is why the extent of a party’s needs is often the subject of dispute in financial applications. Needs will depend upon many factors, including the length of the marriage, the provision for any children and the standard of living enjoyed by the parties during the marriage.
Also, if the inherited assets have been ‘intermingled’ with the matrimonial assets, then this can give rise to a claim that the inheritance should be treated as part of the matrimonial pot and therefore capable of sharing upon divorce between both spouses. The same would apply if an inherited asset had been transferred into the party’s joint names, or used for the benefit of the family.
You are likely to have to share your inheritance if it has been merged with other matrimonial assets or if you, your spouse and children’s reasonable needs cannot be met by using matrimonial assets alone and what is “reasonable” will vary from case to case.
You are more likely to keep your inheritance if;
• It has been kept separate from other matrimonial assets.
• Needs can be met by dividing other assets.
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