Partner Miranda Green sheds light on the handling of inherited assets in the divorce process, dispelling common myths to empower individuals with clarity and informed decision-making.
Divorce is a multifaceted process with far-reaching financial implications, and one area that often leads to confusion is the treatment of inherited assets. Many individuals believe that money or property inherited during a marriage should remain untouched in divorce proceedings due to its origin from one spouse's family or loved ones. However, the reality is more nuanced, and debunking common myths surrounding the fate of inherited assets during divorce is essential for clarity and informed decision-making.
Myth: inherited assets are automatically excluded from the assets to be divided during divorce
In England and Wales, property and assets acquired through work, business or investment are usually put into the matrimonial pot and divided equally on a divorce. While there is a general distinction between assets acquired through the parties' efforts during the marriage and inherited assets, the court assesses each case individually to determine the fair division of inherited wealth.
Money or property inherited during the marriage is not automatically exempt from the assets to be divided. The court takes various factors into account, including the size of the inheritance, when it was received, the duration of the marriage, how the inheritance was dealt with during the marriage, and the financial needs of both parties.
Myth: if the inheritance has been used during the marriage, it remains separate
The intermingling of inherited assets with matrimonial assets, such as transferring them to joint names or using them for the family could give rise to a claim that the inheritance should be treated as part of the matrimonial pot and capable of sharing on divorce. The court places importance on how the inheritance was dealt with during the marriage.
Myth: excluding inherited assets always puts one party in a stronger financial position
Excluding inherited assets from divorce proceedings does not always confer a stronger financial position. Inheritance may be treated as a matrimonial asset if both parties' needs, including capital or income requirements, necessitate it. Upon divorce the extent of the parties ‘needs’ can vary hugely and will depend on many factors including the length of marriage, standard of living enjoyed in the marriage and most importantly the arrangements which have been made concerning the parties’ children. The court may even award more matrimonial assets to one party if the other has access to inheritance as an alternative resource.
Myth: inherited assets can be fully protected
While individuals may believe that inherited assets can be fully protected, the reality is that the ring fencing of these assets away from the matrimonial pot is more likely if they have been kept separate and are not essential to meeting the parties' needs in divorce. A well-drafted pre-nuptial or post-nuptial agreement can contribute to securing the inheritance. However, it is crucial to keep the inheritance separate from other matrimonial assets throughout the marriage.
Upon divorce, a financial settlement will protect you from any future claims your ex-spouse may make if you inherit property or assets at a later date.
Understanding the realities surrounding inherited assets in divorce is crucial for making informed decisions and navigating the legal landscape. Individuals who have recently inherited and are contemplating separation are advised to seek legal advice to explore their options.
How can we help?
Miranda Green is in the family and children team. She is both a mediator and a collaborative family lawyer (both specialist forms of dispute resolution designed to reach solutions out of court) as well as a Resolution accredited specialist in complex finances and European and International Family Law.
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