Inheritance and Divorce

How are inherited assets are dealt in divorce?

Inherited assets are not automatically ring-fenced from the pot of assets to be divided up in a divorce. The court will look at your situation holistically to arrive at a fair financial settlement. 

Many people believe that if you inherit something during your marriage, it’s automatically protected in the event of a divorce since it came from your family or loved ones.

In reality, inherited assets such as money and property don’t just get a free pass.

The court has wide discretion to redistribute all the couple’s assets in a way that it deems fair—and that can include inherited assets.

Inherited assets can be a source of confusion when it comes to making a financial settlement agreement. It is a common myth that assets inherited during a marriage are ring fenced in divorce proceedings because they originate from one spouse’s family or loved ones.

How are inheritance and divorce related?

Inheritance and divorce are related because anything one partner inherits may be included as part of the financial settlement in a divorce.

This may seem unfair. After all, only one of the partners received the inheritance, and they may have received it before the marriage took place.

The law recognises this and starts from a position where inheritances are not automatically included in the pot of assets to be split between you when you go your separate ways.

However, depending on your circumstances, they can be taken into account.

When will the court share an inheritance?

In divorce proceedings, assets are either:

• Matrimonial assets – assets that the couple has accrued together during the course of their marriage (e.g. shared savings, property). Matrimonial assets automatically go into the pot of assets to be divided.
• Non-matrimonial assets – assets that one individual partner owned before the marriage or which came from an outside source during the marriage, like an inheritance. Non-matrimonial assets do not automatically go into the matrimonial pot.

In many cases, you will be able to keep non-matrimonial assets out of the financial settlement you and your ex agree to, or from a financial order the court makes. But if the matrimonial assets are not enough to meet the reasonable needs of both parties, then the court can take non-matrimonial assets into account as well.

If this happens, then the spouse can benefit from the inheritance money.

Will the inheritance be split 50-50?

“Reasonable needs” is a flexible concept. Under the Matrimonial Causes Act 1973, the court has wide discretion to redistribute assets in a way that it deems fair, which may or may not involve a 50-50 split of the inheritance.

The court will look at various factors when deciding an appropriate split, or whether the inheritance should be shared at all. This includes such things as the couple’s standard of living during the marriage, each person’s age, health and income, and the needs of any children from the marriage, which take priority.

What other factors will the court take into account?

The court will also take other factors into account when deciding whether an inheritance should change from a non-matrimonial to a matrimonial asset. These include:

• The value of the inheritance
• When it was received
• How long you have been married
• Whether you mingled the inheritance with shared money in the past.

For example, if you placed the inheritance money in a joint account and spent it on family expenses, the court may decide that you intended for it to be shared and place it into the matrimonial pot to be split between you and your ex.

The case of Y v Y – needs trump all

The case of Y v Y is a good example of how these concepts fit together. Here, the court confirmed that:

• The needs of the parties will always outweigh any right to ring-fence inherited assets as non-matrimonial, and
• The court can invade an inheritance if it’s “fair and justified” to meet the other party’s reasonable needs.

In Y v Y, the parties were married for 26 years and had five children, some of whom were still school age. The couple enjoyed an exceptionally high standard of living through the marriage. The lion’s share of the wealth came from a large country estate that the husband had inherited from his family.

The wife sought a lump sum of £11.2 million in order to rehouse and set up an investment fund. The husband offered £7 million of which £3.5 million he suggested be used to re-house.

Ultimately, the wife was awarded £8.74 million, which was 32.5% of the inherited assets. The court confirmed that it will look at each family’s unique situation when deciding how to divide assets on divorce. In this case, the court deemed it fair and justifiable to include one-third of the inheritance in theFinancial Remedy Order.

Is future inheritance considered in a divorce settlement?

Inheritance that you expect to receive in the future, for example from a parent who is still alive, is not usually taken into account.

However, if you finalise the divorce without putting a financial consent order in place, then your ex-spouse may be able to make a claim against that inheritance if it comes through in the future. The only way to avoid this is to make sure you have a legally binding financial settlement in place before the Final Order is issued in your divorce.

In some countries, there is an automatic right to inherit. If this is the case in your situation, the inheritance may be seen as an asset already belonging to you and therefore considered part of the assets to be divided on divorce.

Our expertise in international divorces means we are used to situations like this and can advise you on the best way forward.

Can you protect an inheritance from your spouse?

Often, one partner who received an inheritance may want to ensure the money is passed to their children and not to their ex. Do they have to share the inheritance?

It can be possible to ring-fence an inheritance in some circumstances. For example, you might consider:

• A prenuptial agreement
• A postnuptial agreement
• Ensure the inherited asset is kept separate from matrimonial assets and not mingled with shared money during the marriage
• Place the inheritance in a trust for the benefit of the children.

Each of these options needs planning and legal advice to be effective. Waiting until a divorce is imminent may limit your options for protecting inherited wealth and the best advice is to take professional guidance as soon as possible after the inheritance has been received, or even before it is received.

How can we help protect an inheritance in divorce?

Divorce and inheritance issues can be challenging to navigate, especially when they intersect. At Osbornes, we have teams of experienced divorce lawyers and private wealth lawyers who work together to ensure the best possible outcome, particularly in regards to resolving financial matters in divorce.

We offer a free confidential consultation to anyone who needs advice. Speak to one of our specialist family solicitors on 020 7485 8811 or fill in the contact form.

Further reading:

• Are trusts protected from divorce?
• Who gets the house in a divorce?
• How are pensions split in a divorce?
• Are business assets protected in a divorce?