“But we broke up years ago…” – The Impact of Delay in Family Court Settlements

There appears to be a significant degree of misunderstanding amongst the public surrounding the issue of inheritances in Family Law property settlements, and how they should be treated. This is especially so when the inheritance is received after the parties have been separated, often for quite lengthy periods. Two relatively recent cases re-affirm the danger that the passage of substantial time since separation or divorce cannot necessarily provide any security for the inheriting party, who in both cases lost substantial sums of money by failing to resolve financial affairs with their ex-spouses in a timely manner.

By way of general background, once parties have divorced there is a statutory 12 month period within which an Application for property settlement must be brought. After that time, an Application can only be brought with leave of the Court. Notwithstanding the general rule, Leave Applications are often successful, much to the dismay of the economically stronger party.

Take the case of Calvin v McTier [2017] Fam FAFC 125 where the Family Court on appeal had to determine whether the Husband’s inheritance was to be included in the asset pool for property settlement.

The Facts of the Case

The parties “tied the knot” on 2 February 2002 and separated 8 years later in April 2010. A decree nisi for divorce was granted on 2 August 2011. Accordingly, the time limit for either party to bring an Application for property settlement expired 2 August 2012. There was one child of the marriage, aged 6 at the time of divorce.

Three years later, in January 2014, the Husband received a substantial inheritance from his late father’s estate which was later established to have a value of $430,000.

One year later, in January 2015, the Wife made an Application for property settlement almost 2.5 years after the expiry of the time statutory limit. Leave to bring the Application was given in March 2015, on the basis the Wife would suffer hardship if leave was not granted. Making Applications out of time is a topic for a separate article but suffice it to say that many such Applications are granted and the “protection” of the 12-month rule is more apparent than real.

At first instance, the Trial Judge found the net assets of the parties to be just over $1.3 million which included the remaining inheritance of $430,000. This inheritance accounted for around 32% of the total net asset pool for distribution. The Husband sought to argue that his inheritance should not be included in the overall pool because there was a “distinct lack of connection” between the receipt of the inheritance and the parties’ matrimonial relationship. The Husband was unsuccessful in his argument, with the Trial Judge finding that although the parties’ contributions during their relationship were equal, the Husband’s post-separation contribution (due to the inheritance) was substantially greater than the Wife’s. The parties had had equal care for their child since separation.

As a result of his greater post-separation contributions, the Court held that the Husband should be awarded 75% of the net asset pool – including the inheritance – based on contributions. When assessing the parties’ respective future financial needs, the Court then made a 10% adjustment in favour of the Wife to reflect her overall weaker financial position. In the end, the Husband received 65% of the total pool including the value of the inheritance.

The Husband then appealed the decision of the Trial Judge to the Full Court of the Family Court, again arguing that there was an insufficient connection between the marriage which had long been over, and the inheritance he had received some four years after separation.

Justices Bryant, Ryan and Aldridge dismissed the Husband’s appeal, stating that:

• The Court had the power to include the Husband’s inheritance in the net asset pool for distribution and to make Orders concerning that inheritance. It was not relevant when the inheritance was received;
• There was no necessity for property such as inheritances, redundancies or lottery wins acquired after separation to be treated any differently to property acquired during the marriage; and
• There was no necessity for a specific connection between any particular asset owned by one of the parties, and the marriage itself.

The Husband’s lawyers tried to argue — unsuccessfully— that the later acquired inheritance should be considered separately and the parties’ respective contributions applied to it.

As if losing a sizeable chunk of his inheritance wasn’t bad enough for the Husband, he was also ordered to pay the parties’ considerable legal costs for both the Trial and the Appeal.

The matter of Holland v Holland [2017] Fam CAFC 166 is also worth a mention. In this case, the parties were married and had been living together since around 1990. They separated in 2007. When the trial took place in 2011 there were two dependent children of 17 and 14. The parties were ultimately divorced in January 2012.

The Facts of the Case

At the time of Trial, the parties owned a house which was subject to a mortgage, with the total equity being around $140,000. The Husband had continued to pay this mortgage from separation until around 2009. He ceased making payments on the mortgage when he got wind of the fact the Wife had developed a relationship with a new partner. The house was subsequently rented out to a third party with the rental income being deposited into a joint account which was then in turn used to service the mortgage.

In late 2011, more than four years after the separation, the Husband received a $715,000 inheritance from his deceased brother’s estate. At the Final Hearing, the Trial Judge made a finding that the inheritance did not form part of the asset pool for distribution but was, instead, a financial resource of the Husband to be taken into account under Section 75(2) of the Act. The Wife was awarded 60% of the net asset pool of $373,000 (which excluded the inheritance). The Wife appealed.

On appeal, Ainslie-Wallis, Murphy and Aldridge JJ concluded that the Trial Judge had erred in finding that the inheritance received by the Husband was a “financial resource” and not property and that it should be excluded from the pool of assets to which an assessment of contributions should relate.

In addition, the Full Court held that Her Honour had erred by not quantifying the post-separation contributions of the parties (including the inheritance from the Husband) and had accordingly erred in her assessment of contributions overall.

Consequently, the Appeal Judges were unable to “discern the path of reasoning” by which the Trial Judge concluded the manner of distribution of the parties’ property, saying: “We are comfortably satisfied that Her Honour gave insufficient weight to the ownership and retention of unencumbered real property in which the Husband resided which had a value of over double that of the property to which the Section 79(4) contributions assessment was applied.”

The matter was then sent for a Re-Hearing, with a net asset pool for distribution of over $1,000,000.

Key Takeaways

• The inescapable lesson of these cases is that if you have separated but not formally concluded your financial affairs by way of Court Orders or a Financial Agreement, then you may well be at risk of having an inheritance or any other windfall subject to a property settlement.
• If you stand to inherit a significant sum, and particularly if family members are frail or elderly, then it is essential you consider this in the context that an inheritance can form part of the property pool for division following separation even if the separation occurred some years before receipt of the inheritance.

For advice on this or any other Family Law issue, call DS Family Law for an initial consultation.