How are Inheritance and Windfalls treated in Property Proceedings?

An issue that regularly arises in Property Proceedings is when one party receives an inheritance or financial windfall received after separation but before property settlement, and how that will be treated. Parties frequently assume that such assets will be excluded from division. However, the legal position is more nuanced.

Under the Family Law Act 1975 (Cth) (“the Act”) the Court retains a broad discretion to alter property interests, and the timing of an inheritance or windfall - while relevant - is not determinative.

The Starting Point

The Court’s first task in property proceedings under section 79 (married couples) or section 90SM (de facto couples) is to identify and value the current asset pool.

The Court must consider the legal and equitable interests of the parties at the time of the hearing, not at separation: 

This means that, as a general rule:

Assets acquired after separation, including inheritances and windfalls -may form part of the divisible asset pool.

Distinguishing Between Types of Financial Gains

Not all post-separation financial gains are treated equally. The Court typically distinguishes between:

1. Inheritances

An inheritance received after separation will often be included in the asset pool, but its treatment depends on factors such as:

• The length of the relationship

• The contributions of each party

• The timing of receipt

• Whether the inheritance was intermingled with joint assets

In shorter relationships, courts are more likely to treat an inheritance as a contribution of the receiving party.

In Bonnici & Bonnici (1992) FLC 92-272, the Court recognised that post-separation inheritances can be treated as a financial resource or as a contribution, depending on the circumstances.

2. Windfalls (e.g. Lottery Wins, Compensation Payments)

Windfalls - such as lottery winnings, insurance payouts, or compensation payments - are generally treated as part of the asset pool, particularly where they are received before final orders.

In Zyk and Zyk [1995] FLC 92–644, the Full Court on Appeal confirmed that the Court has a wide discretion in determining what constitutes “property” and how it should be treated. 

Similarly, in Farmer and Bramley (2000) FLC 93-060, a post-separation lottery win was included in the asset pool, though the Court adjusted the outcome to reflect the circumstances of its acquisition.

Contributions vs Financial Resources

A critical distinction is whether the inheritance or windfall is treated as:

• A contribution (favouring the receiving party), or

• A financial resource (relevant to future needs, but not directly divided)

In Pierce & Pierce (1998) 24 FamLR 377, the Full Court emphasised that the weight given to contributions must be assessed in the context of the overall asset pool, particularly where there are large disparities.

Where an inheritance is received late and kept separate, courts may give it significant weight as a contribution of the recipient. Conversely, if it is received early or used for joint purposes, it may be treated more neutrally.

Timing Matters - but Is Not Decisive

The timing of receipt (post-separation but pre-settlement) is relevant but not determinative. Courts have repeatedly confirmed that:

• There is no automatic exclusion of post-separation assets

• The focus remains on achieving a just and equitable outcome (s 79(2); s 90SM(3))

In Bevan & Bevan [2013] FamCAFC 116, the Court reinforced that property division is not formulaic and must be assessed holistically, taking into account all the circumstances at the time of hearing.

Practical Outcomes

In practice, courts may deal with inheritances and windfalls in several ways:

• Include in the pool, but adjust contributions in favour of the recipient

• Quarantine or notionally exclude the asset in appropriate circumstances

• Treat the asset as a financial resource affecting future needs

The outcome will depend heavily on the facts of each case.

Key Takeaways

• Post-separation inheritances and windfalls are not automatically excluded from property settlement

• The Court considers the entire asset pool at the time of hearing

• The treatment of such assets depends on timing, contributions, and overall fairness

• Courts retain a broad discretion to achieve a just and equitable result

Conclusion

The treatment of inheritances and windfalls received after separation is a complex area of Australian family law. While such assets may feel personal or separate, they can nonetheless be brought into account in property proceedings.

The ultimate question remains whether the proposed division of property is just and equitable in all the circumstances. Given the variability in outcomes and the significant financial implications, obtaining tailored legal advice is essential when these issues arise.

Ultimately, the Court retains a broad discretion to alter property interests, and the timing of an inheritance or windfall, while relevant, is not determinative.

Need advice about inheritance, windfalls or property settlement after separation? Palm Law Group offers a free 30-minute consultation and clear fixed-fee guidance tailored to your situation.