Inheritance is often deeply personal; frequently tied to family legacy and therefore of significant emotional consequence.
The treatment of inherited wealth on divorce can easily become a contentious issue, especially when the inherited assets have been paid into a joint bank account or spent on a jointly owned asset.
In England and Wales, the law does not automatically require inherited assets to be shared on divorce, but the reality is more nuanced. So, can a spouse be entitled to inheritance?
Matrimonial vs non-matrimonial assets
Matrimonial assets are classed as those acquired during a marriage to include any period of pre-marital cohabitation as a consequence of joint endeavour. The sharing principal applies to matrimonial assets, meaning that the starting point is equal sharing.
Inherited assets are classed as non-matrimonial, meaning they are not subject the sharing principle.
However, in some cases, where there are insufficient matrimonial assets to meet the needs of both parties if shared equally, it may be appropriate for the court to determine that they should be shared other than equally and, in some cases, for the inherited assets of one party to be shared with the non-inheriting party.
If the inheritance has already been received and used for joint purposes, such as buying or renovating the family home, it will in all likelihood be classed as matrimonial and become subject to sharing. The key questions will be how the asset was treated and whether it was intended to be for the joint benefit of both parties.
To protect inherited wealth, individuals should be cautious about how they handle it:
- Avoid mingling: Keep inherited assets in your sole name and avoid using them for joint expenses or investments.
- Avoid treating the inheritance as “joint” e.g. do not transfer into a joint bank account from which both parties can spend freely.
- Consider a trust: Placing inheritance into a trust may help preserve its status as a separate asset, though courts can still scrutinise the trust’s purpose.
- Enter into a nuptial agreement: A prenuptial or postnuptial agreement can clarify intentions regarding inheritance. Although these are not legally binding, they are increasingly influential in court.
- Seek legal advice early: A solicitor and tax accountant can help you structure your affairs to minimise a risk of dispute, particularly by expressly stating in written form your intentions as to ownership.
Can Inheritance After Separation Be Divided in Divorce?
Inheritance received after separation but before the divorce is finalised will need to be disclosed and will be considered as a financial resource to the recipient. The existence of the inheritance may impact how the matrimonial assets are redistributed between the parties.
Is Future Inheritance Affected After a final Financial Order has been made?
Maybe. Once an Order has been made, its terms will be legally binding and enforceable. Some orders, such as lump sum orders are final and cannot be set aside save in exceptional circumstances. Other orders, such as order for spousal or child periodical payments (maintenance) are variable. Such orders can be varied upwards, downwards or capitalised. In some cases where an inheritance is received after a maintenance order has been made, it may become affordable for the monthly payments to be capitalised so that a further lump sum can be paid in full and final settlement.
In short, inheritance can be protected if the recipient treats it carefully and avoids promises as to intention that they later regret.
If you’ve received or expect to receive an inheritance and are interested in preserving it for your sole benefit or for future generations, here at HC we can assist you in making the right choices for safeguarding your wealth.
Need Help Protecting Your Inheritance During Divorce?
Our team at Herrington Carmichael can assist with your divorce, a pre- or post-nup and trusts within our family and private wealth and inheritance teams. Please contact us.
