Inheritance after separation but before divorce. Is it classed as a marital asset?

An inheritance received after separation but before divorce is not automatically protected from financial claims. While inheritances are often treated differently from marital assets, the Family Court may still consider them when deciding how assets should be divided, particularly where financial needs cannot otherwise be met. This article explains how inheritances are treated during divorce proceedings, when an inheritance may become relevant to a financial settlement, and the factors the court is likely to consider.

Inheritance After Separation

When a couple separates with a view to divorce, one of their primary considerations is how to divide their finances. A potentially contentious area within this is inheritance and whether it qualifies as a matrimonial asset to be shared between the parties.

In England and Wales, separation and divorce have different legal implications, and the court’s treatment of inheritance varies depending on the parties’ stage in the process and other factors.

This article explains the distinctions between separation and divorce, marital and non-marital assets, and the key factors that influence the court’s approach to inheritance after separation but before divorce. This article is for illustrative purposes only, as the court’s approach will vary depending on a case’s specific facts. For further advice and to discuss your case, contact Tyrer Roxburgh to speak to our team of specialist family lawyers today.

Separation vs. divorce

Separation and divorce are both ways to end a relationship. However, as the table below highlights, they are distinct in various ways.

Divorce Separation

Judicial separations are rarely the best course of action from a legal standpoint. However, some people may have moral or religious objections to a civil divorce, favouring the informal procedure that still allows them to divide their finances.

Parties who opt for this instead of a divorce can prepare a separation agreement detailing the practical arrangements and finances. This includes agreeing on the care of any children, which party stays in the family home, who is responsible for paying outgoings, and how they will manage other assets such as savings. While a separation agreement isn’t technically legally binding, a court will likely uphold it if its terms are fair and both individuals willingly enter into it. It may also be used as the basis for a formal financial order if the parties eventually divorce.

It is crucial for separating spouses to speak to a family law solicitor to understand their options and ensure they choose the correct process for their particular circumstances.

Marital vs. non-marital assets

Generally, marital (or matrimonial) assets are acquired by the parties during the marriage, while non-marital assets are acquired before marriage. Determining whether an asset is marital or non-marital is vital, as anything that falls within the former is usually considered available for division following divorce.

A typical example of a matrimonial asset is the family home, while a non-matrimonial asset could include a property that one party purchased before getting married. In terms of inheritance, the court generally considers it to be non-marital, but this heavily depends on specific circumstances. For more on how the court distinguishes between these categories, see our article on matrimonial assets v non-matrimonial assets and ring-fencing.

A common issue parties face is whether inheritance received after separation but before divorce should be classed as a marital asset. If so, the court could order the inheriting spouse to pay a proportion to their ex-partner. So, how does the court deal with this issue?

Inheritance after separation but before divorce

When dealing with a divorce financial settlement, the court’s priority is dividing up the available assets to ensure they meet each party’s needs and the needs of any children.

The starting point for inheritance received after separation but before divorce is that it does not fall within the matrimonial pot, so the inheriting party does not need to share it. This approach reflects the law’s acknowledgement of inheritance as a gift to the individual as opposed to the couple.

However, certain factors could mean a judge deems it fair or necessary to treat inheritance after separation but before divorce as a matrimonial asset. These factors are as follows:

● Needs: If the other marital assets are insufficient to meet the parties’ needs, dividing the inheritance may be necessary.

● Intermingling: Where the inheriting party puts their inheritance towards a marital asset, the court may see this as intermingling and could, therefore, apply the sharing principle. For example, a spouse might use inherited funds to pay off the mortgage on the family home.

● Period of separation: If there is a long period of separation before one party receives their inheritance, it is more likely to be ring-fenced as non-matrimonial. If the parties are recently separated and still financially tied when a party acquires the inheritance, the court may class it as a matrimonial asset.

● Conduct: In exceptional circumstances, the court can penalise parties for unreasonable behaviour, which may involve using that party’s inheritance to rectify their conduct. For example, suppose a husband inherits £100,000 and, during divorce proceedings, recklessly spends £50,000 of marital money. In that case, the court may order the husband to use his inheritance to return the £50,000 to the matrimonial pot.

The court encourages parties to achieve a clean break where possible, meaning they have no financial ties to each other following divorce. Therefore, any inheritance received after the financial order will belong to the party it is gifted to; only rarely will the court revisit this and consider sharing inheritance acquired post-divorce. For more on inheritance you have not yet received, see our article on whether future inheritance is considered in a divorce settlement.

How the court manages inheritance can significantly vary depending on the particular case, so obtaining legal advice is strongly recommended. Where a substantial inheritance is involved, the overall value of the assets may bring the case within the remit of our high net worth divorce solicitors.

Reaching a settlement over inheritance

Broadly, there are three stages to obtaining a financial settlement.
1. Mediation – The first stage is to attempt mediation, a form of alternative dispute resolution (ADR) that allows parties to reach an agreement outside of court.

The court requires parties to explore mediation before filing an application, as it can be an effective way to minimise costs, delay, and acrimony. It involves both spouses presenting their positions to an impartial third party who acts as a go-between to help them narrow the issues and agree on how to divide their finances.

2. Court proceedings – If mediation is unsuccessful, the parties can apply for a financial order. By filing this application, they begin formal court proceedings and must comply with the relevant directions and timelines.

One of the first things spouses must do is complete and exchange Form E, a detailed statement setting out their financial information. The parties owe a duty of full and frank disclosure, meaning they must provide accurate details of all their finances. This includes stating whether they have received or expect to receive inheritance.

3. Financial order – Spouses should continue negotiating while proceedings are ongoing to reduce the need for court hearings. If they cannot agree, a judge will eventually decide how to divide the finances and make the relevant order.

Either way, the terms of the financial separation must be written in a court order to be legally binding. If the parties manage to agree, they must prepare a consent order containing the relevant terms, which the court must approve.

Conclusion

Dividing finances following separation can be complicated, especially when it involves inheritance. Whether the court deems inheritance marital or non-marital depends on various factors, including the parties’ needs, conduct, and any intermingling of assets. While it is generally treated as non-matrimonial, the court has the power to factor it into a financial settlement if necessary.

We understand that working through these concerns can be overwhelming, so we’re here to help. Our expert family lawyers will do all they can to minimise the need for expensive court proceedings, including solicitor-led negotiations and guiding you through mediation. Contact Tyrer Roxburgh today for more information.