The treatment of inheritance on divorce
by Lisa Burton-Durham, March 31st, 2012
In England and Wales the law relating to financial property when a couple divorce is discretionary and wide ranging. The principles acknowledge that the circumstances surrounding separating couples and families are countlessly different and a ‘one size fits all’ approach would never work. However, for us lawyers it can make it very difficult to predict the likely outcome of a particular case.
This is particularly apparent when we are dealing with inheritance. Our divorce laws do not distinguish between ‘inherited property’ and ‘matrimonial property’ but simply requires the court to consider the property and other financial resources which each party has or is likely to have in the foreseeable future. It also looks at contributions which each party has made or is likely to make in the foreseeable future to the welfare of the family amongst a number of other factors.
When divorcing there is a duty on both parties for inheritances or potential inheritances in the foreseeable future to be disclosed. Inheritance will be treated as a contribution by one of the parties and the extent to which that contribution will be relevant will depend on all the circumstances of the case.
In the case of White v White (2000) Lord Nicholls said that inherited property should be taken into account but that it should be decided how important it is in a particular case. Does that make it any easier for us? Probably not, it simply reinforces the court’s discretionary approach. However, the Court’s first consideration on a divorce is to be given to the welfare of any child of the family. In the vast majority of cases that will mean that any inheritance already received or about to be received will need to be taken in account on the basis that all available money, wherever it may have come from, will be required to provide accommodation for the parties and their children. If using the inherited property is the only way of meeting the parties’ needs (and those of the children) then that is what will happen more often than not.
But what about cases where inherited assets are much more significant and the needs of the parties and their children can be easily met from other resources?
In circumstances such as these the court must consider the nature and value of the inherited property and how it came about. An asset passed down through generations may be treated differently. An example of such an asset would be a family farm where it would seem completely unfair to force its sale when one party’s family has lived and worked there for many generations. The parties’ standard of living is also very relevant – the longer the wealth has been enjoyed during the marriage the less likely that it will be ring fenced and excluded from the ‘pot’.
Certainly from my experience it seems that the longer the marriage and the longer the inheritance has been in existence the more probable it is that inherited assets will be included in the ‘pot’ and shared. Where an inheritance is received towards the end of a marriage or after the parties have separated it is more likely to be treated differently. However, this is certainly not always the case.
Whilst there is some clarity for cases where money and property is limited, in cases of medium to large wealth it continues to be extremely difficult to predict the outcome of a particular case.
The Family Home & Bankruptcy
by Lisa Burton-Durham, May 6th, 2011
There is no doubt that financial pressures can cause many break-ups as families struggle to pay their bills and meet their financial commitments. Unfortunately, when parties divorce it is not just about dividing their assets; with a rise in personal bankruptcy the issue of how to address debt becomes a critical consideration.
If you are considering separating or divorcing from your partner and are concerned about the debts that you have either in your sole or joint names it is important to get legal advice as soon as possible.
But what if one party is bankrupt or where bankruptcy is a possibility?
The effect of bankruptcy
In bankruptcy, almost all of the assets of the bankrupt person are no longer his or hers – they are held instead by someone called the Trustee in Bankruptcy. This is likely to have serious implications for the bankrupt’s spouse because the pot of matrimonial assets is potentially made much smaller by the bankruptcy. The Trustee’s role is to protect the creditors of the bankrupt spouse. For instance, if the family home is jointly owned it cannot be transferred into the non-bankrupt spouse’s sole name without the Trustee’s consent or a Court Order.
On divorce, particular care must be taken where there is a risk that one of the spouses may become bankrupt. For instance, if the matrimonial home were jointly owned by the bankrupt and his spouse, the house cannot be transferred into the spouse’s sole name without the Trustee in Bankruptcy’s consent. This is likely only to be given if the spouse can buy out the bankrupt’s share at a reasonable market value – something that may not always be possible.
Similarly the bankrupt is unlikely to be able to pay any lump sum or maintenance to the spouse. This is because bankrupt’s savings and much of his or her income will be the Trustee’s instead and will be used to discharge his or her debts.
When it comes to the family home, the law has to balance two conflicting interests: those of the trustee and creditors and those of the bankrupt as well as his or her family.
The effects of bankruptcy can be so serious that some people choose to make themselves bankrupt in order to frustrate or delay their spouse’s claims in relation to the financial settlement.
Top Tips
- In short, try and resolve as much as possible before the bankruptcy process commences. Bankruptcy is often threatened before any action is taken. A prompt application to the family court may allow appropriate orders for financial settlement to be made before a bankruptcy order is made.
- Check whether the property is held in joint names or in one party’s sole name. If the property is owned solely by the bankrupt then the spouse may be able to establish a beneficial interest in the property that will give them rights as an occupier e.g. by having contributed towards the mortgage.
- If you are the non-bankrupt spouse, register your beneficial interest in the family home as soon as possible with the Land Registry.
- Careful planning and prompt access to legal advice are crucial in a situation where bankruptcy is a possibility. Without it, your and your children’s home could be at risk.
This is a complex area and specialist advice should be sought if you believe you may be affected, directly or indirectly, by bankruptcy.