Many people who come to see us are worried about what will happen to an inherited asset or a potential future inheritance upon divorce, so allow us to explain how divorce can impact the process of inheritance.
What Is Classed as Inheritance?
The inherited assets may take many forms including cash, investments, land or buildings. They may have been in the family for generations.
That is why many people feel it would be unfair for them to have to share these assets with a spouse, given that the assets have usually been left to them by a relative, intending that they, rather than their spouse, should benefit from the assets.
The principles applied by the court are not always straightforward but we hope that this blog will help to clarify the issues.
How Courts Treat Inheritances Received Prior to Divorce
How the court is likely to treat an inheritance on divorce largely depends on whether the court classifies the inheritance as a matrimonial or non-matrimonial asset.
This classification is important because the court will normally take the view that matrimonial assets should be shared equally between the parties.
Whether or not the court will classify a particular asset as a matrimonial asset depends upon the facts of the individual case. The fact that the asset was inherited from one party’s family member will give it a “head start” as being classified as a non-matrimonial asset, as provenance is an important factor when the court comes to make the determination.
Another important factor is when the inheritance was received. If it was received prior to the marriage or after the separation, it is less likely to be viewed by the court as a matrimonial asset.
A third important factor is whether the asset has been “mingled” with other matrimonial assets. For example, one party may have inherited a cash asset which they later used to purchase a property in the joint names of themselves and their spouse and both spouses have both enjoyed the rental income from the property.
In this example the court may determine that the house is a matrimonial asset because of the “mingling” of the inherited money with matrimonial assets.
If the court determines that the inheritance has become a matrimonial asset, then the court will expect the asset to be shared between the parties to the marriage. The starting point is equal sharing.
Even if the court agrees that the inherited asset is not a matrimonial asset, the court may need to “invade” the asset to meet the needs of either party or of the children of the marriage.
One of the most important principles which is applied by judges when they are deciding how to divide the assets between parties on divorce is the principle of “need”.
The court always strives to ensure that the party who is more vulnerable financially (usually a wife with young children) receives an award which is sufficient to cover their needs for accommodation and living expenses.
Therefore, if an equal division of the matrimonial assets is not sufficient to meet that party’s needs, the court may either increase their share of non-matrimonial assets over and above a strict half share or award them a share of a non-matrimonial asset.
“What About Future Inheritances?”
Often, one party will argue that the other party’s future potential inheritance should be taken into account when the judge is deciding how to share assets between the parties.
The court will rarely take a potential future inheritance into account even in a situation where one party has an elderly parent who is in ill health.
How to Protect Inheritance?
If you receive an inheritance during your marriage, the best way to protect that inheritance is to ensure that it is always kept separately and in your sole name and there is no element of “mingling” the asset with matrimonial assets or sharing the asset with your spouse.
You may also like to consider entering into a Prenuptial or Postnuptial Agreement with your spouse, which clearly states that your inheritance is to be regarded as your separate property and should remain with you and under your sole control during the marriage and should not be shared with your spouse upon divorce.
As long as the terms of the Nuptial Agreement meet the needs of the other party and any minor children, and you have followed the procedural steps which are important for a Nuptial Agreement, the Nuptial Agreement should be effective in protecting your inheritance.
How Can I Ensure That My Former Spouse Does Not Inherit From Me On Death?
Once you are divorced, you should make a new Will or consider revising any existing Will.
Although, upon the grant of your Final Order of divorce, the Will will take effect as though your former spouse had died on the date of the Final Order, and any appointment of them by you as an executor, trustee or beneficiary will fail, it is always best to ensure that your wishes are set out clearly in an up to date Will.
You will need to ensure that any Financial order made within the divorce proceedings contains a “clean break on death”. The Inheritance (Provision for Family and Dependants) Act 1975 enables certain categories of people, including spouses and former spouses, to make applications against the estate of a deceased person, if the deceased person has not made provision for the spouse/former spouse in their Will.
The right to make such an application must be dismissed by the Financial Order. This is a fairly standard clause which should be included in the Financial Remedy Order by your solicitor as a matter of course.
