At a Glance
- Inheritances and gifts are generally considered property of the recipient, but are not automatically excluded from the asset pool
- Courts assess the source, timing, and use of the asset in the context of the entire relationship
- The longer the relationship and the greater the financial intermingling, the more likely an inheritance will be treated as a shared resource
- Evidence of intent, such as testamentary directions or separation of funds, can influence outcomes
- Legal advice early in separation can help preserve claims over inherited or gifted property
How Are Inheritances and Gifts Treated in Property Settlements?
Under the Family Law Act 1975 (Cth), the court has broad discretion to divide property between former spouses or de facto partners in a manner it considers "just and equitable." This includes any asset owned by either party, regardless of how it was acquired, even if it was received through an inheritance or as a gift.
The starting point is clear: an inheritance or gift is not automatically protected simply because it came from a family member or was received by one party only. Instead, the court evaluates whether and to what extent that asset should be shared, based on the contributions and future needs of both parties.
This principle was reflected in the High Court case of Stanford v Stanford [2012]. In that case, the wife’s health had significantly deteriorated, requiring high-level, ongoing care. The associated costs were primarily met through her pension and a trust fund of approximately $42,186.36 established by the husband. The husband continued to reside in a property registered in his name, which he had acquired prior to the marriage and which served as his principal residence.
The High Court emphasised that, before making any property adjustment order, particularly one involving assets such as inheritances or gifts, the court must first determine whether it is "just and equitable" to do so. This involves considering whether the asset has become intermingled with the parties’ joint financial affairs, whether the asset is necessary to meet the needs of the party seeking adjustment, and whether alternative arrangements (such as maintenance orders) could meet those needs without causing undue hardship to the other party.
In Stanford, the Court found that the wife’s reasonable needs were already met through the existing pension and trust arrangements. Forcing the husband to sell his long-term residence would result in significant detriment. Therefore, although the property in question may otherwise have been subject to adjustment, the Court held that in the specific circumstances, it would not be just and equitable to make a property order.
When Are Inheritances and Gifts Included in the Asset Pool?
The inclusion of these assets depends on several factors:
- Timing of receipt: Whether the inheritance was received before, during, or after the relationship
- Use of funds: Whether the money or asset was used for joint purposes, such as paying off a mortgage or funding shared living expenses
- Degree of mingling: Whether the inheritance was kept separate or mixed with joint finances
- Length of the relationship: Longer relationships increase the likelihood that an inheritance will be treated as a shared asset
- Intention of the giver: Though not decisive, evidence that the donor intended the gift exclusively for one party may be taken into account
For example, if a person receives $300,000 as an inheritance and deposits it into a joint account to buy a family home, that asset is almost certainly going to be treated as part of the shared pool. Conversely, if the same sum is kept in a separate account and used only for personal investments without benefiting the other party, it may be argued that it should remain with the recipient.
Case Example: The Status of Inherited Property in Marital Property Division
If inherited property is used during the course of a marriage to support the family or is mixed with joint assets, the court may consider it part of the divisible property pool. In Bonnici v Bonnici (1991), the court, based on the specific facts, considered whether part of the inheritance should be included as divisible property. Although some of the inherited assets were registered in the husband's name, the funds had been economically integrated into the marital life and thus came under consideration. While there was debate about their inclusion, the court ultimately determined that the assets in question remained the husband's personal property.
At the same time, the Bonnici case emphasised an important limiting principle: where an inheritance is received very late in the relationship or after separation, and the other party has not made a substantial contribution to it, it will generally be treated as the recipient’s personal property. In other words, whether an inheritance is included in the property pool depends on timing, usage, and the actual contributions of both parties, not merely the legal form of the inheritance or any emotional attachment.
Gifts from Third Parties
Just like inheritances, significant gifts from parents or other relatives, such as real estate, shares, or cash, are not automatically excluded from property division. In Gosper v Gosper (1987), the wife’s parents gifted a block of land in McCrae to the husband and wife jointly in 1983, covering the associated stamp duty and legal costs. The express purpose of the gift was to keep the property within the family.
Although the gift came from the wife’s relatives, the court found that the property should be included in the asset pool under section 79 of the Family Law Act 1975 (Cth). The court further held that, although the gift was motivated by the familial relationship with the wife, it ultimately supported the marital relationship and therefore constituted an indirect financial contribution on the part of the wife. The husband’s subsequent involvement with the land was minimal—limited to basic maintenance and payment of one year’s expenses, which the court considered negligible in the context of property division.
This case illustrates a key legal principle: while legal title and the donor’s intent are relevant factors, the court places greater weight on whether the gift was used within the context of the marriage and the actual contributions of each party. If the gift was used to support the family or converted into a mutual benefit, it may be included in the asset pool and attributed as a contribution by the recipient.
How Is the Division Affected?
Even when an inheritance or gift is included in the asset pool, its inclusion doesn’t mean it will be split 50/50. Rather, it forms part of the broader assessment under the four-step process:
- Identify all assets, liabilities, and financial resources
- Assess direct and indirect financial and non-financial contributions
- Consider future needs (e.g., age, health, care of children)
- Determine whether the proposed division is just and equitable
If one party contributes a significant inheritance, the court may adjust the division in their favour, particularly when the other party has made limited financial contributions. However, this is not an absolute rule.
In Kessey v Kessey (1994), the husband inherited a property from his mother. The court acknowledged that the inheritance constituted a substantial financial contribution by the husband to the asset pool. Nevertheless, the court did not treat the asset as solely his. Instead, it took into account the wife’s substantial non-financial contributions over the course of a long marriage, including her roles in homemaking and caring for the children. Ultimately, applying the principle of holistic contribution, the court determined that a fair division was still required, based on the entirety of contributions, not merely the legal source of the inherited property.
Key Takeaways
- Inheritances and gifts are not automatically excluded from property settlements
- How the asset was used during the relationship heavily influences its treatment
- Keeping funds separate and documenting donor intent improves chances of protection
- Length and nature of the relationship matter—longer relationships dilute the weight of personal windfalls
- Early legal advice can help preserve claims and structure financial arrangements strategically
Frequently Asked Questions
Are inheritances always included in a property settlement?
No, not always. They are assessed based on when they were received, how they were used, and the overall circumstances. If kept separate and not used jointly, they may be treated as a non-shared contribution.
What if I received an inheritance after separation?
Generally, post-separation inheritances are more likely to be excluded—especially if received significantly after separation and not used for joint purposes. But timing and usage still matter, and early use in proceedings can complicate claims.
Can I protect my inheritance with a binding financial agreement?
Yes. A binding financial agreement (commonly known as a prenuptial or postnuptial agreement) can specify that an inheritance remains the sole property of one party, provided it is properly drafted and both parties obtain independent legal advice.
Does it matter who the gift was from?
It can. Gifts from close family members may carry more weight regarding intent, but the court will still examine whether the gift benefited the relationship. A gift from a stranger is treated much like any other asset.
How can I prove an inheritance should stay mine?
Maintain clear records: keep the inheritance in a separate account, avoid using it for joint expenses, and, if possible, preserve evidence of the donor's intention (e.g., a letter or will clause stating it is for you alone).
How We Can Help
We assist clients navigating complex property settlements involving inheritances and gifts by:
- Assessing whether an inheritance or gift should be included in the asset pool
- Advising on the best way to manage and document inherited funds before or during a relationship
- Preparing binding financial agreements to protect future or existing assets
- Representing clients in negotiations or litigation to ensure fair outcomes
- Gathering and presenting evidence of contributions and donor intent
Our approach balances legal principles with real-life financial planning. The earlier we’re involved, the better we can protect your interests and achieve a just outcome.
