A party to a marriage or civil partnership may understandably want to know whether their spouse would be awarded a share of assets they have inherited if they ever divorce, and what they could do to reduce the chance of this happening.
Firstly, there is a general principle even where short marriage or civil partnerships are concerned, property acquired during the marriage through the joint efforts of the parties should normally be shared equally on divorce. This includes the family home regardless of how, when, or which party acquired it. Such property is known as matrimonial property.
For non-matrimonial property, it is fair to say that generally, and especially in the case of a short marriage, the courts start with the view that a party should be allowed to keep their own non-matrimonial property.
It is also important to stress that needs are always an extremely important factor. For example, if a half-share of the property would not be enough to meet one party’s reasonable needs, then this might result in that party retaining more than half of the matrimonial property.
So, what happens to non-matrimonial property that is inherited? It depends. For example, a small amount of money inherited at the start of a long marriage, which has either been spent by the parties or has been mixed with other assets, such as using an inheritance to pay off or reduce the mortgage on the family home, may not be ring-fenced or treated differently from the matrimonial assets. A party might seek to argue that it has become matrimonial property and should therefore be shared. Relevant factors can include when it was received during the relationship, how substantial it is compared to the value of the overall property and how it has been used.
For example, if the parties generally kept their finances separate to inherited money and has always been kept by one party and not shared it may be more likely to be retained by that party on divorce. If on the other hand an inheritance was used to buy an investment property and both parties worked on that property and the rental income from it was enjoyed by both during the joint marriage, then a party might seek to argue that it has become the matrimonial property and should therefore be shared.
What would the position be about a potential inheritance? One party may claim that the other will inherit money in due course, perhaps on the death of their parents, and that this should be considered in the divorce settlement. However, the courts will look at the situation as it is at the time of the divorce and, unless a relative is very ill or has died, so that it is clear one party to the marriage is likely to benefit soon, the court is unlikely to take a potential future inheritance into account. This is especially so for relatives who are still alive as they could always make a new Will, providing they have the necessary capacity to do so.
So, what if anything, can a party to a marriage or civil partnership do to avoid an inheritance being lost on divorce? Although not very romantic, it is always advisable to have a prenuptial agreement drawn up before the marriage takes place. If this has not been done, then you can always enter into a legal agreement after the marriage has taken place. This is known as a post-nuptial agreement and is a legal document which sets out what is intended to happen in the event of a marriage ending in divorce.
This can be a very useful tool because it avoids any arguments later on about what the facts were and what was and what was not intended to happen in respect of an inheritance. Again, it is always necessary to ensure that the reasonable needs of the other party and dependent children have been met. Not surprisingly, this is more difficult to execute, as it involves a party giving up rights after they are married – and requires a bit more persuasion! Often, it can be parents that insist that their children have one if they want to be eligible for an inheritance, to make sure their bequests cannot be dissipated in the event of divorce.
The best way to avoid all of this is to stop the inheritance happening in the first place – which can save the dispute ever occurring. This can be done most effectively by way of setting up Wills that direct assets to a Trust on death, which then falls outside the children’s estate. This is something that tends to be very popular with parents who want to make sure that their hard work does not get dissipated to an ex-spouse of their children, who no longer wishes to be married to their children!
If you would like to find out more about how your estate could be protected from dissipation, then please contact us. One of our Wealth Strategists would be happy to explain this to you.