Divorce leads to many questions regarding marital assets and what happens next regarding your finances. With 102,678 divorces in England and Wales in recent yearly stats, many couples are also asking how their divorce impacts potential inheritance.
Generally, your inheritance is not automatically considered to be a marital asset, but it can be under certain circumstances. In this guide, we discuss the issues surrounding inheritances and how to protect yours during divorce proceedings.
What classes as inheritance in a divorce?
Under the law in England and Wales, inheritance is not automatically considered to be matrimonial property. In short, your spouse does not have the right to your inheritance, whether you received it before or during your marriage.
However, some scenarios may result in inheritance funds being incorporated into asset division. Generally, the question a court will ask is whether your inheritance can be considered matrimonial property. If so, it must be entered into the matrimonial pot. It can also be shared if there are not enough matrimonial assets to meet the needs of the parties or any relevant children.
Do you have to disclose inheritance when divorcing?
Countless divorcees will have received or expect to receive an inheritance. According to the latest inheritance study carried out by Zoopla, Brits expect to receive £195,687 from their parents alone, with most of it taken up by property.
English and Welsh divorce law states that all forms of inheritance must be disclosed as part of the financial disclosure process. Before worrying about this, the standard financial disclosure process does not mean that everything on the table will be automatically shared.
Courts will consider your inheritance when deciding on a fair financial settlement, but that doesn’t mean it will be classified as matrimonial property and shared.
How inheritance and divorce work
The most common myth is that inheritances are ringfenced because they originate from one party’s family or loved ones. The truth is that although inheritances are generally non-matrimonial property, this only means that they are not automatically incorporated into asset division.
Courts have wide-ranging powers to include all assets, including inherited ones, but they always begin from the position that inheritances are not automatically incorporated into matrimonial property.
However, suppose inheritances are blended, such as if they are used to improve the family home or pay off the mortgage on the family home. In these cases, they are highly likely to be classed as matrimonial property and shared with your spouse. In other cases where the inheritance has been used for other things, the situation is far more complex.
What happens to assets inherited before you divorce?
Assets inherited before a divorce are not automatically considered matrimonial property. They can, however, become matrimonial property if they are shared, such as through buying a family home with the proceeds or depositing into a joint account.
Even if the monies are placed in joint names, or even your spouse’s sole name, the court will still consider the source of the monies and the reasons why they have been put into the name of your spouse before making a decision on whether they have been “matrimonialised”.
Inheritances gained before your marriage are not automatically entered into the asset division process, but they are not automatically protected either. It’s up to the courts to determine a fair settlement for both sides where the parties cannot reach an agreement.
Is your ex-spouse entitled to your future inheritance?
Inheritances achieved after separation but before divorce may become part of proceedings, depending on the needs of both sides. However, it’s unlikely your ex-spouse will have any claim on a future inheritance after your divorce settlement, especially in the case of a clean break.
Clean breaks in law mean that both parties have dispensed of their legal obligations to each other. However, without a clean break order, an ex-spouse may attempt to make a claim on your inheritance as a divorce alone will prevent future financial claims.
What factors will the court take into account when considering inheritance in a divorce?
Courts will look at every marriage individually when deciding whether an inheritance should be incorporated into the division of assets.
Here are the primary factors a court will use:
- Length of Marriage – Shorter marriages are more likely to see inherited assets excluded. The one exception is if they have seen integration into the couple’s finances, such as being deposited into the family home.
- Financial Needs – The court will look at the needs of both parties, especially if there are children involved. Inherited assets might be used to make up any shortfall for a party in greater financial need if there are not sufficient assets from the marriage to meet the needs of the parties and their dependent children.
- Standard of Living – Courts look to maintain the standard of living both sides enjoyed during the marriage if at all possible. They will factor this in when considering whether it is fair to incorporate inherited assets into the equation.
- Inheritance Use – How was the inheritance used? If the money was used for the benefit of the family, there’s a higher chance it will be classified as a matrimonial asset.
- Timing – When was the inheritance received? Inheritances received before the marriage are less likely to be classified as matrimonial assets, unless they’ve been shared for the benefit of the family.
How to protect your inheritance from divorce
It’s natural to want to protect the inheritance bequeathed to you by the hard work of your deceased family members/friends. Many divorcees want to ensure that the inheritance goes to their children, rather than their ex-spouse.
Thankfully, there are methods for doing this. The most common options are a prenuptial or a postnuptial agreement. Essentially, your ex-spouse waives their right to any claim on your inheritance. Of course, it relies on them being willing to sign this right away.
The most foolproof option is to establish a trust and place your inheritance in it for the benefit of your children. If this is not possible then at least keep your inheritance in a separate sole account to avoid it being viewed as a matrimonial asset, but this is far from a guarantee.
In all cases, the right move is to seek legal advice on the best option for your situation.
Can a prenuptial agreement protect your inheritance?
Prenuptial agreements in England and Wales are not automatically binding. However, Radmacher v Granatino set the standard that courts will consider them in divorce cases and set out the criteria for when the court should uphold the agreement. This is especially the case if both sides received full financial disclosure and entered into them freely without any undue pressure and after having the benefit of independent legal advice.
In short, prenuptial and postnuptial agreements are another powerful tool for protecting your inheritance from your ex. Like all financial planning, working with expert divorce solicitors at VM Family Law is the best way to keep what you own. To learn more about negotiating the financial aspects of divorce proceedings, contact us today.