What Happens to Your Inheritance During a Divorce Settlement in Australia?

by Special Counsel Gavin Lai

During the divorce process, dividing marital assets can often lead to conflict, especially if it involves an inheritance. One spouse may have received an inheritance from a parent or another family member.

Should that property be shared with the ex-partner, or does the spouse who received it have the right to keep it all? How should inheritance be dealt with in a divorce settlement in Australia?

The short answer is this: an inheritance is not automatically protected, and it is not automatically split either. Whether it forms part of the property settlement, and how much weight it is given, depends on the facts of the case. The Court looks at the timing of the inheritance, how it was used, the intentions of the benefactor, the size of the overall asset pool, each party’s contributions, and each party’s current and future circumstances. Since 10 June 2025, the Family Law Act 1975 expressly sets out that structured approach for property matters.

It is also important to remember that divorce and property settlement are separate processes. A person can negotiate or commence property proceedings before the divorce itself is final, and for married couples the usual time limit is 12 months after the divorce becomes final. For de facto couples, the usual time limit is two years from separation.

The simple solution: A Consent Order

The simplest and least stressful way for two former spouses to come to an amicable agreement regarding any property settlement, including inheritance, is through a Consent Order.

That remains the position today. If parties can reach agreement, the law encourages them to formalise it properly rather than leave matters open. The Federal Circuit and Family Court of Australia makes clear that separating couples can resolve financial matters by agreement and then formalise that agreement through Consent Orders or, in some cases, a financial agreement.

A Consent Order is often the most sensible path because it brings finality, reduces uncertainty, and avoids the cost and emotional strain of litigation. It also helps protect both parties from future claims. Emerson Family Law has written elsewhere about the importance of properly formalising settlements and not leaving financial matters unresolved. See our guides on Top FAQs About Property Settlement After Separation and Property Settlements.

It is only after both parties have tried to negotiate and are unable to agree that the issue will usually proceed to the Court. The Court will then decide how the inheritance should be treated as part of the overall property settlement. In Australia, there are several major factors to consider before deciding how inheritance should be dealt with, including:

When was the inheritance received?
What were the intentions of the benefactor?
What is the size of the overall asset pool?

Those are not the only considerations. The Court will also examine the broader statutory factors now set out in the Family Law Act, including direct and indirect financial contributions, homemaker and parenting contributions, and each party’s current and future circumstances.

1. When Was the Inheritance Received?

The biggest factor in inheritance during a divorce settlement in Australia is when the inheritance was received.

Before

An inheritance received by one party before the relationship, or around the time the relationship commenced, is more likely to be treated as an initial financial contribution by that party. In practical terms, that usually means it is not simply carved out and ignored. Instead, it often becomes part of the overall pool of assets and liabilities, but the spouse who brought it in may receive greater recognition for that contribution.

That point matters. Many people assume that if the inheritance came first, it stays entirely theirs. In family law, that is too simplistic. The Court’s task is not merely to trace ownership history. It is to determine whether altering property interests is just and equitable after considering the whole of the relationship.

During

If the inheritance was received during the relationship or marriage, the way it is treated depends heavily on how it was used and what happened to it afterwards.

For example, if inherited money was applied to the mortgage, renovations, school fees, family holidays, living expenses, or the purchase of a shared home, it becomes much harder to argue that it should remain entirely separate. In those circumstances, the inheritance will usually be seen as a significant financial contribution by the spouse who received it, but one made into the life of the relationship.

On the other hand, if the inheritance was kept in a separate account, never used for joint purposes, never intermingled with family finances, and clearly preserved for the sole benefit of the beneficiary, there may be a stronger argument that it should be given different treatment. That does not guarantee exclusion, but it can improve the position of the party who inherited it.

Late or After

A late inheritance, or one received after separation, is often where the real dispute arises.

This is the area where many online articles oversimplify the law. A post-separation inheritance is not automatically safe. It may still be treated as property available for consideration in the settlement, depending on the circumstances. Emerson Family Law’s earlier article on this topic rightly noted that inheritances received late in the relationship or after separation are often argued to be outside the shared pool, but that the outcome remains fact specific.

The case law also shows why broad statements are dangerous. In the line of authority that includes Calvin & McTier [2017] FamCAFC 125 and Holland & Holland [2017] FamCAFC 166, post-separation inheritances were still capable of being taken into account in the property division. Those cases are often cited for the proposition that the Court looks at the property existing at the date of hearing and then decides how it should be treated, rather than assuming that “after separation” means untouchable.

So, if you have received an inheritance before, during, or after separation and your hope is to retain it in full, the critical question is not simply when you received it, but how that timing interacts with the rest of the case.

For a related discussion, see our article: Is Inheritance After Separation in Australia Safe?.

2. What Were the Intentions of the Benefactor?

When looking at inheritance during a divorce settlement, the Court will also examine the intention of the benefactor, to the extent that intention can be proved by the evidence.

For instance, if the benefactor intended the inheritance to benefit the entire family, it is more likely to be treated as part of the joint asset pool. That may be reflected in the wording of a will, the surrounding circumstances, or the way the inheritance was dealt with in practice after it was received.

If, however, the inheritance was clearly intended to benefit only the named beneficiary, and that party kept it separate from joint assets, the argument for separate treatment becomes stronger. Evidence that may assist includes:

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the terms of the will or trust
letters or statements from the deceased or estate lawyer
how the inheritance was held
whether it was deposited into a separate account
whether it was ever used for joint family purposes
whether both spouses had access to or control over it

The Court may also look at the relationship between the benefactor and both parties. If, for example, the benefactor lived with both spouses, was cared for by both spouses, or there is evidence that the inheritance was intended to assist the family unit rather than one person alone, that can influence the way the inheritance is treated.

In other words, intention matters, but intention on its own rarely decides the issue. It must be supported by the surrounding facts.

3. What Is the Size of the Asset Pool?

The size of the asset pool compared to the size of the inheritance received can have a major influence on how the property is dealt with during a divorce settlement in Australia.

This is often the decisive practical issue. If the parties have substantial other assets, the Court may be more willing to treat a late inheritance as a distinct contribution or to structure orders that preserve more of it for the inheriting party. But if the non-inherited asset pool is modest, and excluding the inheritance would leave one party in an unfairly weak position, the inheritance may still need to be brought into the overall analysis.

This is especially important in longer relationships, or where one spouse has much greater future needs. The Court now expressly considers current and future circumstances such as age, health, income, earning capacity, care of children, liabilities, reasonable living standards, and the economic effect of family violence where relevant. That means even where one party has a strong argument that the inheritance was theirs alone, the ultimate result may still involve some redistribution if that is what justice requires.

The same practical logic applies where the inheritance sits alongside other complex assets such as businesses, trusts, superannuation, overseas assets or significant debt. See also our related guides on What Happens to Family Trusts in Property Settlement in Australia? and Are Your Overseas Assets Included in Your Property Settlement in Australia?.

How the Court Now Approaches Inheritance in a Property Settlement

Since 10 June 2025, the legislation has been more explicit about the approach to property cases. In broad terms, the Court:

identifies the legal and equitable interests of the parties and their liabilities
considers contributions
considers current and future circumstances
decides whether the proposed outcome is just and equitable

That structure is important for inheritance disputes because it explains why there is no universal rule that inheritances are always excluded or always shared. The inheritance may be identified as property, but the way it affects the final division will depend on the later stages of the analysis. In some matters it will carry very substantial weight as a contribution by one party. In others, especially where fairness requires it, the practical outcome may be more balanced.

The 2025 reforms also elevated the duty of disclosure into the Act itself. That means parties negotiating or litigating property matters are under a clear obligation to give full and frank disclosure of relevant financial information and documents. If an inheritance exists, or is expected to vest imminently, that issue should be considered carefully with legal advice.

Is an Inheritance a Separate Asset or a Financial Resource?

Sometimes an inheritance will be treated as part of the property pool. In other matters, particularly where it has not yet vested or where the factual circumstances justify a different approach, it may instead be dealt with as a financial resource.

That distinction can matter a great deal. Property is something the Court can usually take into account directly in altering interests. A financial resource may still influence the outcome, but in a different way. The answer depends on the nature of the entitlement, whether it has vested, and the realities of the parties’ access to it. Emerson Family Law discusses that distinction further in What is a Financial Resource and How is it Different to Property?.

Married Couples and De Facto Couples

The same broad principles apply whether the parties were married or in a de facto relationship. The Federal Circuit and Family Court of Australia confirms that de facto couples can seek property adjustment orders if the statutory requirements are met, and the same core property principles apply.

That is important because many people searching for “inheritance and divorce” are really dealing with the end of a de facto relationship. If that is your situation, our articles on Our Guide to De Facto Property Rights in Australia and A De Facto Relationship in Qld: Your Rights & Entitlements may also assist.

Frequently Asked Questions About Inheritance and Divorce in Australia

Is inheritance split in divorce in Australia?

Not automatically. An inheritance may be taken into account in a property settlement, but whether it is effectively shared depends on the timing, how it was used, the overall asset pool, each party’s contributions, and each party’s present and future circumstances.

Is an inheritance part of a divorce settlement?

It can be. The Court first identifies the property and liabilities existing at the relevant time, then decides what outcome is just and equitable. An inheritance can therefore be highly relevant, even if it was received late or after separation.

How is inheritance treated in a divorce?

There is no fixed formula. Usually the Court looks at timing, use, intention, contributions, and future needs. Early inheritances are often treated as an initial contribution. Inheritances used for family purposes are harder to isolate. Post-separation inheritances may still matter.

Can my ex claim inheritance received after separation?

Possibly, yes. Post-separation does not automatically mean protected. Much will depend on the size of the remaining pool, whether excluding the inheritance would produce an unfair result, and how the Court characterises the asset in the context of the case as a whole.

Does it matter if I used the inheritance for the family home?

Yes. If inherited money was used to reduce the mortgage, improve the home, or fund family expenses, it is generally much harder to argue that it should remain quarantined from the settlement.

Can inheritance be protected in advance?

Sometimes. Depending on the stage of the relationship and the circumstances, a properly drafted financial agreement may help manage risk. That said, these documents must be prepared carefully and are not suitable for every matter.

Unsure How Your Inheritance Is Affected by Divorce? Request a Confidential Consultation at a Fixed Fee

Whether you are attempting to resolve this issue out of court or require legal representation in court, it is important to obtain advice tailored to your facts. Inheritance cases are rarely decided by a single rule. They turn on timing, evidence, contributions, and the practical justice of the outcome.

At Emerson Family Law, we act in complex divorce and separation, property settlement, and financial agreement matters. If you are unsure whether your inheritance is likely to remain substantially yours, or whether you may have a claim in relation to an inheritance received by your former spouse, you can contact us for confidential advice. You may also wish to review the Court’s own overview of financial or property matters and the Attorney-General’s family law property changes fact sheet.