We look at the factors the court may take into account when considering inherited assets following a divorce or dissolution of a civil partnership, and what steps can be taken to protect or ring-fence inherited assets.
What is inheritance?
Inheritance refers to the assets that are passed down to a person upon the death of an individual. The inheritance may be governed by a will or, if there is no will, the assets will be shared out in accordance with certain rules known as the rules of intestacy.
The assets can include (but are not limited to), cash, investments, personal items (e.g., watch, jewellery) and real estate.
What happens to inheritance on divorce or dissolution of a civil partnership?
On separation, it is not uncommon for one or both spouses/civil partners to want to try and ring-fence assets they may have inherited from a source wholly external to the marriage. However, whether this can be achieved depends on a number of factors.
The starting point on divorce or the dissolution of a civil partnership is for all the assets however owned and from whatever source to be disclosed. The court must consider a number of factors in dealing with their finances such as the separating couples’ respective earning capacity, their ages, disabilities (if applicable), their respective contributions and crucially whether their respective needs can be met.
It is sensible therefore to look at the factual situation in this context, what are the inherited assets; how are they held now and how they have been deployed by the spouses/civil partners throughout the marriage/civil partnership.
Matrimonial and non-matrimonial assets
If someone raises the issue of an inheritance and how it should be considered by the court, then the first thing to ask is when was the asset/ monies received and how have they been treated by the spouses/civil partners. Overarching this issue is whether respective needs and those of any children can only be met by utilising/ invading those inherited assets, in which case any argument about trying to ringfence such assets is unlikely to have much merit.
In considering how inheritance is to be dealt with, the court will consider matrimonial and non-matrimonial assets.
Matrimonial assets refer to assets built up during the marriage/civil partnership (e.g., the family home, pensions and savings) by the endeavour of the spouses/civil partners. The court consider that these assets are matrimonial and should form part of the matrimonial pot and be available for distribution on divorce or dissolution of a civil partnership.
If a spouse/civil partner inherited a property that is being used as the family home, then that will usually be considered a matrimonial asset and available for sharing as the spouses/civil partners have chosen to utilise it as the family home which usually takes a central place in any marriage/civil partnership.
However non-matrimonial assets usually refers to assets acquired by one spouse/civil partner pre-marriage/civil partnership, post-separation or through inheritance. Case law has shown that non-matrimonial property can be ring-fenced if the other spouse/civil partner’s financial needs can be met with the matrimonial assets available. Each case is however fact specific.
The weight the court gives to non-matrimonial property depends on a number of factors such as the length of the marriage and the intermingling of the assets. For instance, if inheritance was received at the start of a long marriage and has been spent or inter - mingled with matrimonial monies then it is unlikely that the court will attach much weight to the same. If however it has been kept separate and distinct and remains in the spouse/civil partner’s name who inherited it and hasn’t been used and isn’t needed then there may be a much better chance to exclude it from the sharing principle.
The value of the inheritance compared to the matrimonial assets is also important – that is if the inheritance is relatively minor in the context of the value of the matrimonial assets then it is more likely that a successful ring fence argument may arise.
Inheritance received post-separation is more likely to be excluded from the matrimonial pot unless the sum being received is substantial and the other spouse/civil partner’s needs are not met through the division of matrimonial property.
Is my spouse entitled to my inheritance?
While this depends on the facts, generally inheritance received post-separation is more likely to be excluded from the matrimonial pot unless the sum being received is substantial and the other spouse/civil partner’s needs are not met through the division of matrimonial property.
What happens to inheritance received after the marriage (i.e., when I am divorced)?
If you obtain a financial order with a ‘clean break’ provision, neither you nor your ex-spouse or civil partner can make any claims against each other for capital or maintenance in the future. This includes inheritance.
How can a spouse/civil partner best protect their inheritance?
- Prior to getting married, it might be sensible for the couple to enter into a pre-nuptial agreement to set out how the assets are to be divided on divorce/dissolution of a civil partnership. If the couple are already married, then a post-nuptial agreement can also be entered into. The pre-nuptial agreement could seek to ring-fence inherited assets or future inheritance. Whilst nuptial agreements are not automatically binding, they are considered highly persuasive by the court and provided that they comply with a number of factors, the courts tend to give them significant weight.
- Spouses/civil partners seeking to ring-fence inheritance should keep the same separate from the other (e.g., in a separate bank account) and not use the funds for matrimonial purposes. It would be helpful to have a clear paper trail of evidence to demonstrate how the assets have been kept separate.
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