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The treatment of inherited assets upon divorce

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In England and Wales the law relating to financial property on divorce is discretionary, which brings with it the obvious advantage of flexibility to provide for the countless different circumstances of divorcing couples, however, it also means that it is very difficult to predict with any certainty what the likely outcome of a particular case may be.
This is particularly apparent when inherited property is in issue. The law in England and Wales does not differentiate between “inherited property” and “matrimonial property” but requires the court to simply consider the “property and other financial resources which each of the parties to a marriage has or is likely to have in the foreseeable future” and the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family “ together with a number of other factors, which include the parties income and earning capacity, the financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future, the standard of living enjoyed by the family before the marriage breakdown and the age of the parties and duration of the marriage.
So, how should we expect the courts to deal with inherited property? Unfortunately the courts have so far failed to provide very little guidance in this area. Ever since the decision by the House of Lords in the case of White v White (2000) there has been ongoing debate amongst family lawyers regarding the treatment of inherited assets upon divorce. In that case Lord Nicholls stated that “The judge should take it into account. He should decide how important it is in a particular case”
This does not mean that inherited property will necessarily be treated in the same way as the other assets owned by the parties, the court must still consider the nature and value of the inherited property and how it was acquired. It seems from the courts treatment of inherited assets on divorce that the longer a marriage survives the more likely it is that inherited assets (certainly those acquired early in the marriage) will be included into the “family pot” whereas inheritances acquired towards the end of the marriage or after separation maybe more easily identified and treated differently.
However, in all cases the court should be striving to achieve fairness for both spouses. What does appear clear is that if there is only limited money available for distribution between the parties then it is unlikely that inherited property will be excluded, if having recourse to the inherited property is the only way of meeting both spouses financial needs. Although the situation maybe relatively clear in limited means cases, each year there is a number of reported cases where the relevance of inherited assets is considered in the context of medium or big money cases, and this last year has been no different.
In the case of N v N (2010) the judge found that it was appropriate to ascertain the value of particular inherited assets and the extent to which there should be a departure from equality in respect of those assets, as opposed to giving one spouse an award based simply upon a percentage of all of the assets.
In the case of K v L (2010) the total assets were £59m, £57.4m being made up of shares inherited by the wife nearly 20 years before her marriage, the marriage lasting for 20 years. The husband was awarded £5m plus the former matrimonial home worth £225,000, the judge found in the particular circumstances of that case that fairness did not require the court to award a larger share of the assets to the husband as a result of the concept of sharing.
Finally in the case of Robson v Robson (2010) guidance was given when dealing with big money cases which involve inherited wealth which confirmed that the court should concentrate on the precise wording of statute and that all the factors that the law says should be considered are considered, the weight being given to a particular factor being dependent upon the particular facts of the case, so that flexibility is built into the exercise of discretion. It was felt that judges should not be encouraged to be cautious about including inherited property when considering the assets of the spouses. It confirmed that inherited property should not be ‘ring fenced’ and should form part of the “family pot” but the fact that it is inherited property justifies it being treated differently from assets accrued through the joint efforts of the parties.
These aforementioned judgments, whilst providing further guidance do not really provide any further clarity and merely emphasises the need for continued flexibility in this area of law. Whilst we have achieved some clarity in limited means cases, in medium/ big money cases it is still likely to be extremely difficult to predict with any certainty the outcome of a particular case.
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