Inheritances, Compensation and Windfalls
Can your ex-partner claim your inheritance or compensation payments?
The answer might surprise you.
Deciding who gets what when couples separate can be very complex. Inheritances, injury compensation payments, lottery winnings, and other windfalls are just some of the complexities that couples will need legal advice about. Here’s some in-depth information about how family law in Australia deals with these types of assets at separation.
Even lawyers often argue about one person’s inheritance, or compensation payments, or other windfalls received by one partner. ‘Windfalls’ in this sense is a word used commonly by family lawyers and the court, to differentiate between significant assets received by one party (including for example lottery wins, as well as inheritances and compensation payments) without any nexus to any contribution by the other party, from other assets that are the result of both parties efforts whether directly (for example as part of the employment of the primary income earner) or indirectly (for example as parent or home-maker, whose efforts have facilitated the other partner’s ability to work). Read our article here for more information about financial and non-financial contributions during a marriage or de facto relationship.
When couples argue about how windfalls should be divided when their relationship ends, a lot depends on when the windfall was received. The approach the family law courts have taken is often different depending on the type of windfall.
Inheritances received some time ago and during a relationship, for example, are usually included in the ‘pool of assets’ to be divided between the parties at separation (for more information about this process, please read our other articles about the usual property division process). However, depending on the value of the inheritance, the recipient partner will usually be given credit for the windfall and may receive a greater percentage of the overall property pool than they otherwise would, to compensate them for their windfall. The end result, usually, is that most if not all of the financial benefit from the inheritance is retained by the intended beneficiary, not their partner.
However, the family law courts can on occasion refuse to credit the recipient with any financial credit for a windfall, if the windfall was received a very long time ago and has since been intermingled over the years with other matrimonial assets. For example, if at the beginning of a very long relationship, one partner received a small windfall and the money was then invested in a house, or used by both parties for a holiday or to repay joint debts, the courts will often consider the significant contribution of the windfall has been eroded over time.
Even windfalls received by one partner after separation (but before property settlement) can in very limited circumstances be claimed by the other partner. In the unusual case of Farmer & Bramley [2000] FamCA 1615, the husband had a history of drug abuse and unemployment during the marriage. After the couple had separated, but before property settlement had been finalised, the husband received about $5 million from a lottery win. The family court determined that the wife had made very significant contributions during the marriage, including financially supporting the husband and also caring for the couple’s child. The wife was awarded a small portion of the husband’s post-separation lottery win, in consideration of the previous contributions she had made during the relationship.
Compensation claims are also usually retained by the recipient partner. However, unlike inheritances and lottery winnings, there are additional legal issues to be considered for compensation payments. Compensation payments often consist of different portions, including an amount allocated for previous loss of income, and an amount for expected future medical needs. In some instances, where the other partner can show contributions to the household resulting from the injury (for example returning to work to support the family, or nursing the injured party during convalescence) there can be a successful claim on some portion of the compensation payment.
Additionally, the compensation received for future expected medical expenses and future loss of income from being unable to work (or being unable to continue to work in the injured person’s usual job) as a result of the injury, will be retained by the injured person. However, a compensation payment may also negate any claim they otherwise might have had on an adjustment of other matrimonial assets in their favour, as a result of their medical expenses and reduced earning capacity.
Some payments, often called ‘windfalls’ by lawyers, may not actually be windfalls under family law. Notable exceptions include redundancy payments, or cashed-in leave entitlements. These types of payments often have a nexus to one partner’s employment, which won’t be protected against a claim from the other partner if the other partner made non-financial contributions during the time the entitlement accrued. For example, if a wife stayed home and cared for the children while the husband worked fulltime, accruing his leave or redundancy entitlements, then the wife can argue that she equally contributed (albeit indirectly) to the payments.
Anticipated, future windfalls are never considered property for the purpose of family law property settlement. For example, if one partner has rich elderly parents, their potential future benefit cannot be transferred to the benefit of their former partner. Notable exceptions are where there is proof of a sizeable inheritance, and the inheritance is guaranteed (for example where the testator has lost capacity, and there is no opportunity to revise the will, or has died but the estate is still being administered and the future inheritance can be quantified but has not yet received).
Similarly, a claim for compensation (which has not yet been finalised) should be excluded from any property settlement negotiations if it is still being processed.
Depending on the length of your relationship, and the contributions each party has made including both financial (for example wages or other income) and non-financial (such as parenting and homemaker contributions), inheritances and other windfalls are usually included as an asset of the relationship. However, depending on when the windfall was received and other relevant factors discussed above, the value of the windfall will usually be retained by the original beneficiary.
Windfalls are just one of the many legal complexities many people don’t think about when dividing their assets. If you have recently separated, you should contact Shorestone Legal for a free telephone consultation, or fixed-fee advice session tailored specifically to your circumstances.
