Will I have to share my inheritance with my spouse if we divorce?
Many clients contemplating separation, or newly separated, ask me whether they will have to share an inheritance if they get divorced. Similarly, I am often asked by older clients – the baby boomer generation – whether money they intend to leave or gift to their adult children will be safe if that child goes on to divorce their spouse.
The answer is that it depends.
Monies or assets inherited or gifted before or during your marriage, are not automatically excluded from the matrimonial financial “pot”. In other words, they are not automatically ring-fenced and may have to be shared when a couple divorce.
Whether you will have to share your inheritance when you divorce depends on the specific circumstances of your case.
Whilst most divorces do not end up in court, in order to advise you as to an appropriate settlement, your divorce lawyer will need to look at the approach the court would take if it were to make a decision in your case.
What if my spouse says I can keep my inheritance? Do I have to reveal its value?
It is of course always open to a couple to decide that an inheritance will be retained by the spouse who received it whether this is what a court would decide or not, and to ask the court to make a consent order on this basis. However, if you want the court to make an order you will need to disclose the value of the monies retained – even if you are applying for a consent order.
What is the court’s approach?
When deciding how to divide assets on divorce, the court must look at all the circumstances of the case and in particular the factors set out in Section 25 of the Matrimonial Causes Act 1973. These include the parties’ incomes, resources, needs, ages, the length of the marriage, their standard of living during the marriage and their contributions. Inheritances are not specifically referred to in the statute, although they come within the definition of resources. Nor is there any indication as to the weight to be given to each of the factors listed, which means that the court is not always consistent in its approach.
Additionally, the court will consider relevant case law, which changes over time.
The importance of meeting ‘needs’
The distinction between pre-acquired/inherited (non-matrimonial) property and matrimonial property was first made by Lord Nicholls is the case of White v White  UKHL 54. He said, and I am para-phasing, that inherited assets should be treated differently from matrimonial assets on divorce, but only where both parties’ needs can be met out of the matrimonial assets alone.
This fits with the principle derived from the case of Charman v Charman  EWCA Civ 503 (at paragraph 73) that where a party requires a greater proportion of the assets based on their ‘needs’ than they would otherwise receive by applying the principle of ‘sharing’ (i.e. an equal split), then a division based on ‘needs’ should prevail.
In other words, if there are insufficient other assets to meet the needs of both parties and any children, the inherited assets will need to be shared.
Passage of time and ‘mingling’
In Miller and MacFarlane  UKHL 24, on the subject of non-matrimonial property Lord Nicholls said “the duration of the marriage will be highly relevant” and Baroness Hale observed that “the importance of the source of the assets will diminish over time”.
In K v L  EWHC Civ 550, a case involving a wife’s vast inherited wealth, Wilson LJ (as he was then) analysed these principles and concluded that the importance of the source of the assets may (not will) diminish over time for example in one of the following three scenarios:
* where the extent of the matrimonial property acquired over time is such that it diminishes the significance of the initial contribution of non-matrimonial property; and/or
* where over time the non-matrimonial property has been mixed with matrimonial property so that it is too difficult to identify its current value (known as ‘mingling’); and/or
* where the non-matrimonial property has been used to purchase or has been invested in a matrimonial home, whether in joint names or not.
On the facts in K v L, despite the parties having been in a relationship for around 21 years and having used the wife’s inherited wealth to support the family (they had three children), the fact that they had lived a frugal life and the wife had kept the assets in her sole name, led the court to conclude that the husband’s award should be limited to his needs only. Thus he received £5 million which equated to just 8.5% of the family assets.
Interestingly, the court appears to have taken a slightly different approach in the recent case of Robertson v Robertson  EWHC 613 involving the founder of the online company, ASOS. In this case the husband brought ASOS shares to the marriage (pre-acquired rather than inherited wealth) which were valued at £141 million at trial and Mr Justice Holman decided that because the shares had formed part of the “family economy”, rather than limiting the wife’s award to her needs only, “the only fair way” to treat the pre-existing shares was half as non-matrimonial property to the husband and half as matrimonial property of the parties to be shared evenly. The overall award then constituted £69 million to the wife, equivalent to 31% of the family assets.
When will an inheritance be safe on divorce?
Pulling the above principles together, then, it is more likely that you will be able to keep your inheritance intact if:
* you have kept it completely separate from the matrimonial finances; and
* yours and your spouse’s needs (and the needs of any children) can be met by dividing the other assets alone.
When will an inheritance have to be shared on divorce?
You are likely to have to share your inheritance if:
* it has been mingled with the matrimonial assets – e.g. used to purchase the family home or to pay off the mortgage on the family home or to fund the family; and/or
* yours and your spouse’s needs (and the needs of any children) cannot be met from the matrimonial assets alone.
Do future inheritances have to be considered?
Usually future inheritances are not taken into account when dealing with the financial aspects of a divorce. This is because it can be difficult, firstly, to gauge life expectancy and, secondly, to estimate the size of a potential benefit as testators cannot be compelled to disclose their intentions, which may change over time anyway.
Exceptionally however, where there is an expectation of a significant inheritance, the court may adjourn the lump sum element of an application until the inheritance is received.
What can I do to protect my inheritance from a claim by my spouse?
If you want to protect an inheritance, or if the person making the inheritance wants you to protect it, you should consider entering into a marital agreement (a pre-nup or post-nup) with your spouse. This does not guarantee that your inheritance will remain intact on divorce but it increases the chances.
If you expect to inherit money or assets in the future, you should also consider appropriate trust planning, which can help to protect legacies in certain circumstances.
If you would like any advice on any of the issues raised in this article, please contact Sarah Jackson, Head of Family Law at BLB Solicitors in Bath, Bradford on Avon and Bristol, on 01225 462871.
Image (cropped) by Seth Werkheiser under a creative commons licence