Inherited Wealth – will it be shared on divorce?

Janine Hutson, Senior Associate

One of the key decisions facing couples going through a divorce will be how to divide their property, pensions and other assets. This can be more complicated if there have been assets received from other parties during the marriage, such as inheritance received from family members.

How these inherited assets will be dealt with on divorce can vary significantly, depending on the individual circumstances of the couple involved. It is therefore crucial to understand the various considerations which will come into play.

One key consideration is, can the financial needs of the couple be met without sharing the inherited assets?

Mr and Mrs A run a successful property investment company. They have been married for 25 years and have sufficient assets between them to meet their own needs for housing, income, and pensions. Mr A received £900,000 from his late mother’s estate two years ago and invested this in his own sole name. In these circumstances it is very likely that Mr A’s £900,000 inheritance will be retained by him following the divorce.

Mr and Mrs B are both retired, and the only asset of their marriage is their jointly owned home. They have been married for 30 years. There will be insufficient funds from the sale of their joint home for both spouses to purchase homes which meets their needs. Mrs B received £350,000 from the estate of her late father three years ago. It is likely that Mr B would receive part of this inheritance, in addition to his share of the joint home, to enable him to purchase a property to meet his needs following the divorce.

Another key consideration is whether the inheritance has been combined with, or ‘mingled’ with the other assets held by the couple.

Mr and Mrs C have carried out significant improvements and refurbishment works to their jointly owned home over several years. Mrs C received an inheritance of £200,000 from her late Aunt’s estate nine years ago. She used this towards the cost of the home improvements. This inheritance has been ‘mingled’ with the assets of the couple, by being invested in their jointly owned home. It would be more difficult for this inheritance to be separated from the joint assets of the couple and it is therefore more likely that it will be shared on divorce.

Another consideration is when the inheritance was received. A recently received inheritance, or one which has been received after separation, is more likely to be retained by the spouse who received it. However, if a share of the inheritance is needed to meet the needs of the other spouse, even if it was received more recently, it is still likely to be shared.

An inheritance should be retained by the spouse who received it if:

• It is not needed to meet the reasonable financial needs of their spouse. The couple have sufficient resources to do this without sharing the inheritance.
• It has been kept separate from their joint assets, and not ‘mingled’ together with other joint assets.
• It has been received more recently, in the later years of the marriage rather than the earlier years, or it has been received after separation.

If a couple have received inheritances, or they are likely to in the future, they should consider entering into a pre-nuptial agreement before they marry. This agreement would record how their inherited wealth would be dealt with in the event of a divorce. A married couple with inherited assets should also consider entering into a post-nuptial agreement to record their intentions for these inherited assets in the event of a divorce.

For more advice on separation, divorce or legal assistance for families please contact the Family Law department on 0161 832 3434 or email info@kuits.com.