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How to protect future inheritance from divorce
Protecting your inheritance during a divorce can be a complex and sensitive matter, especially if you wish to ensure it benefits your children rather than being shared with an ex-partner. Under the law in England and Wales, inheritance is not automatically excluded from marital assets, but there are steps you can take to increase its protection.
While future inheritance is not automatically shared on divorce, it can be considered if needed to achieve a fair outcome.
However, it can be kept separate if the right steps are taken in advance. These are some of the steps you can take to reduce the risk of it being divided.
Hear from one of our expert solicitors
Ashley Le-Core, a Partner at our Canterbury law office, says:
“Future inheritance is an area which, in most cases, will not impact the outcome of the financial aspects of a divorce, as the court can only realistically plan the future of the parties based on the assets they have available now.
“However, if parties do not divorce or settle their finances for a long time and one party then has the benefit of a potential inheritance, there is a risk that this can be included as part of the discussions in relation to financial settlements.
“There are a multitude of ways that inheritance can be protected, however, including prenuptial and postnuptial agreements and trusts, upon which specific legal advice should be taken.”
Make a prenuptial or postnuptial agreement
A prenuptial agreement (before marriage) or postnuptial agreement (after marriage) is the most effective way to protect your assets. These agreements outline what assets can be considered matrimonial or non-matrimonial assets and what should be shared or retained in the event of a separation.
In these agreements you can explicitly exclude any assets gained through inheritance from being shared on divorce allowing them to be protected.
These agreements will usually be upheld by the court unless it is unfair to do so, showing the importance of a well drafted prenuptial agreement by a legal expert. The court will look at:
- Was the agreement freely entered into by both parties?
- Did both parties understand the implications?
- Was there full financial disclosure?
- Is the agreement fair at the time of divorce?
- Was the document completed at least 28 days before the marriage?
- Did the parties both have independent legal advice on the agreement before signing it?
Even a well drafted agreement may not be upheld if it isn’t fair at the time of divorce. If the agreement leaves one party unable to house themselves or fails to make proper provisions for any children involved. A nuptial agreement doesn’t override needs.
Keep inheritance separate from matrimonial assets and property
If you later inherit, ensure everything is kept separate from any joint finances. Protect your assets by avoiding using those assets for anything with joint benefit for both parties. Keep anything in your sole name and use separate banking accounts or investment accounts. Once any inheritance is mingled in joint assets, it becomes far harder to protect.
Ensure you don’t use any inheritance for the family home. One of the most common ways of losing protection is when it is invested into a joint property, used to pay off a joint mortgage or fund family living expenses.
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Maintain records
Maintaining records and a paper trail of sources of funds will help show that they have not been mingled with the joint assets. This can help with any previous inheritance received as well as protect from future claims.
Consider a trust
Inheritance held in a discretionary trust can offer greater protection than if it’s held in a regular bank or investment account. There is particular protection when the assets are held in a trust where you do not have an immediate entailment to the capital and/or where trustees control distributions.
Get legal advice
A dedicated family law solicitor can help you understand your individual circumstances. They can assess your assets and advise on the exposure of your inheritance. If it forms a large part of your assets, it may be harder to protect, so an expert can help with any strategies to protect it.
How can I protect my children’s inheritance from divorce?
To protect your children’s inheritance from divorce, it’s essential to take steps to safeguard this inherited property from the effects of divorce:
- Creating a trust with your children as beneficiaries is an effective strategy. As long as the inheritance remains separate and designated in a trust, it can be safeguarded, preventing claims during divorce settlements.
- Keep inherited assets separate from marital property by holding funds in a separate account and other assets in your sole name. Mixing inheritance with joint assets could make it subject to division during divorce.
- As previously mentioned, establish a pre-nuptial or post-nuptial agreement, which can exclude inherited property from marital claims and ensure your children receive the inheritance as you intended.
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What is inheritance classed as in divorce?
Inheritance in divorce is usually classed as a non-matrimonial asset. These are not automatically included in the matrimonial pot when dividing assets. However, it can be classed as a matrimonial asset if the family finances are intertwined with the inheritance.
The assets can take various forms, including:
- Cash
- Investments such as stocks, bonds, or shares
- Jewellery or treasured family heirlooms
- Antiques
- Real estate like homes or other properties
During divorce proceedings, inheritance is typically treated as separate from marital property. Whether it is included in the division of assets depends on factors such as how the inheritance has been used, whether it has been combined with joint finances or if it remains in the sole name of the recipient.
What’s the difference between matrimonial and non-matrimonial assets?
Matrimonial and non-matrimonial assets are key distinctions in divorce proceedings, influencing how property and finances are divided.
Matrimonial assets
These assets are acquired during the course of the marriage, typically through joint effort or for the couple’s mutual benefit. They are automatically available to be shared in the matrimonial pot.
These assets are generally pooled together and divided fairly upon divorce, including:
- Family homes purchased during the marriage
- Shared savings
- Pensions
- Businesses established or grown through joint contributions
Non-matrimonial assets
In contrast, non-matrimonial assets are assets not acquired through joint effort or during the marriage. These include property or wealth owned before the marriage, inheritance, or gifts directed to one spouse specifically.
While non-matrimonial assets are typically excluded when dividing assets during divorce, exceptions may arise. If non-matrimonial assets like inheritance are used to benefit the family, such as improving a shared home, they may lose their non-matrimonial status.
In addition, if the matrimonial assets are insufficient to meet the needs of both spouses or children, courts may consider non-matrimonial assets to ensure fairness. This highlights the importance of carefully managing such assets during marriage to preserve their separate status and as a way of protecting inheritance from divorce.
Is future inheritance considered in a divorce settlement?
Future inheritance is generally not considered after a divorce. Expected inheritances, such as those from a living parent, are typically excluded as they are often speculative and uncertain.
However, if a financial consent order is not secured during the divorce process, an ex-spouse may later make a claim on inheritance received post-divorce. To prevent this, it’s essential to have a legally binding financial settlement in place to protect your future inheritance from divorce.
In rare and extreme cases, future inheritance could be considered in a divorce settlement – for instance, if the inheritance is substantial and can significantly alter the financial outcome, an ex-spouse might argue for a share. Similarly, where assets in the marriage were minimal, a court could look to the inheritance as a fair way to divide finances.
The way inheritance works in divorce is dealt with on a case-by-case basis, so it can be complicated. That’s why it’s important to seek professional advice from specialist divorce solicitors if you would like a clearer understanding of your legal rights throughout divorce proceedings.
Our experts would be happy to help, get in touch today to find out more.
What happens to inheritance if you are separated but not divorced?
If you are separated but not divorced, inheritance received after separation is generally considered a non-matrimonial asset and does not automatically form part of the divorce settlement. This reflects the principle that inheritance is a gift to an individual, not the couple.
However, the court may include it in the settlement if a need arises, such as there being insufficient matrimonial assets. Other factors, including the length of the period of separation or the inheritance being put towards a marital asset, may also influence the court’s decision to treat the inheritance after separation but before divorce as a matrimonial asset.
What happens next?
As you navigate your divorce and the complexities that surround what will happen with inheritance, it’s important that you seek expert advice.
At Stowe, we have a team of expert divorce lawyers who specialise in the division of assets and financial settlements in the wake of a separation. We can also put you in touch with professional financial advisors who can offer you the guidance you need.
Get in touch with our expert financial experts here or call us on 0330 159 9194 to speak to our team.
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