The treatment of inherited assets is often an issue in a divorce. A common question/concern is whether the spouse who inherited those assets or in some cases, is due to inherit should automatically be able to retain those assets for themselves. Stacey Seaborne-Hall, Associate Financial Adviser and Divorce Solicitor Hannah Porter answer some of the clients frequently asked questions around inheritance and divorce.
I’m divorcing my spouse and I received an inheritance during our marriage/just after our separation, will this need to be shared as part of the divorce?
There are many factors the court take into account when looking at inheritance including when was it received, how some or all of it has been spent and the value of the other assets in the marriage. Your solicitor will want to be arguing on your behalf that it is a non-matrimonial asset and therefore should not fall into the “marital pot” of assets to be divided between you and your spouse.
However, if you have used part of the inheritance to, for example, pay off some of the mortgage on the family home, this may be considered by the court to be intermingled with marital assets and, if so, would therefore fall into the “marital pot” to be divided. A court will also look at whether your needs and your spouse’s needs can be met without recourse to the inherited assets, if needs cannot be met by the marital assets, it is likely that the court will not allow you to keep the full amount of your inheritance without your spouse receiving a share of this.
I am divorcing my spouse who is aware that I will inherit a substantial sum in the future but the relative from whom I will inherit is still alive; will this affect the outcome of my finances upon divorce?
When the court looks at the assets of a marriage, it looks at the assets on the date the financial proceedings come before the court, not some unspecified date in the future. However, in determining what proportion of assets each of you receive, both current and future needs are a relevant consideration of the court. Whilst it may feel insensitive for the Court to consider your relative passing away, if they are very elderly or unwell the court may take your future inheritance prospects into account when looking at the future needs of yourself and your spouse. It will depend upon factors such as whether your inheritance is coming through the Will of someone who has already passed away or someone who is still alive (as anybody can change a Will up to their death and the Court will be very cautious about dividing marital assets based upon uncertain inheritance prospects). Inheritance is dealt with differently in different countries so if you have a relative of foreign nationality residing in a different country, it may be that you have an automatic entitlement to inheritance which the court will want to address in its decision-making.
The way a court may deal with inherited assets or a potential inheritance is very fact specific and you will want to take advice from a specialist family lawyer if this is your situation.
So, if the court’s ultimate question comes down to the need for each spouse, how can I determine how much money I may need to retain for my future?
From a Financial Planner’s perspective, Cashflow modelling can look to demonstrate and support answering the question of need now and over your lifetime. Cashflow is a really effective tool to provide a visual analysis of your financial wellbeing over your lifetime. It considers life events, now and those of the future. Therefore, receiving an inheritance can be reflected within the cashflow and projected over your lifetime to understand the need to retain the lump sum (or need for the lump sum to be shared if you are not the beneficiary, your former spouse is).
I have just finalised my divorce and the decision was for me to retain my inheritance. I don’t need the lump sum now so what shall I do with it?
Going through a divorce can be a very emotional experience and once finalised, the relief that it is over can make some client’s focus drift.
Ensuring that your finances are structured efficiently to work for you and your future once a divorce is finalised is key. One last push to get this put in place can make a real difference longer term.
For me, the initial step is to understand what you want to achieve from the lump sum? What access do you need and at what time? How are your other assets structured and are they aligned suitably to your needs now that the divorce is finalised?
Once we understand the overall picture of how your finances are structured and what you would like to achieve, together we use this information to understand and put into place, the right solution for the inheritance that is aligned to you and your needs.
Regardless of the choices you make, you should always remember that the value of investments can go down as well as up and you may not get back the amount invested. Seeking early legal and financial advice on the situation will help you be best prepare for this technical and often emotive situation.
For more information about inheritance and divorce please do get in touch with Hannah or Stacey.
Stacey Seaborne-Hall – Tel: 01392 260 652 Email: [email protected]
Hannah Porter – Tel: 01392 421777 Email: [email protected]