Inheritances and Divorce Property Settlement?

Inheritance – What Happens to Them In Divorce Property Settlement

An article was written for accountants and financial advisors by Vanessa Mathews of Mathews Family Law & Mediation Specialists.

Your client has the good fortune to receive a ‘windfall’, such as an inheritance or a lotto. Your client and their partner separate.

Will the windfall be included in the property settlement asset pool?

Your client will likely answer ‘No Way’!

From the court’s perspective, windfalls are not a special category of contributions and they must be:

1. Included in the asset pool.
2. Considered in the same manner as, and holistically with, all of the other contributions made during the relationship – financial, non-financial, homemaker and parenting.

The timing of the windfall will however be relevant as to how the windfall is ‘shared’:

• A windfall received early in the relationship is likely to be treated equally.
• A windfall received shortly before separation is less likely to be treated equally.
• A windfall received after separation is even less likely to be treated equally.

The short answer is that the windfall is unlikely to be retained in full by your client.

I’ll leave it to you to break the bad news to them.

Next Steps Before a Divorce Property Settlement

You and/or your client may benefit from discussing the circumstances of the inheritance or other windfall and divorce property settlement before taking any action such as distributing or disposing of the asset in a manner that may adversely impact your client.

Vanessa Mathews is a family law specialist solicitor with the expertise and experience to advise you about your family law property settlement issues.

Please call Mathews Family Law & Mediation Specialists on 03 9804 7991 or email [email protected] to speak with Vanessa Mathews or one of our other family law attorneys regarding any family law property matters.

Resources

Mathews Family Law – Dividing the Property: https://mathewsfamilylaw.com.au/divorce/divorce-videos/dividing-the-property-in-victoria/

Family Court of Australia: http://www.familycourt.gov.au/wps/wcm/connect/fcoaweb/home

Federal Circuit Court of Australia: http://www.federalcircuitcourt.gov.au/wps/wcm/connect/fccweb/home

How Are Property Settlements Determined After Separation in Australia?

One of the most common concerns following separation is understanding how property will be divided.

In Australia, property settlements are governed by the Family Law Act 1975 and apply to both married couples and eligible de facto couples (including same-sex couples).

The purpose of a property settlement is not simply to divide assets. It is also intended to help finalise the financial relationship between the parties and provide certainty for the future.

The law recognises that contributions to a relationship are not limited to financial contributions. Contributions made as a homemaker, parent or through non-financial efforts are also considered.

The Importance of Finalising a Property Settlement

A formal property settlement can provide certainty and allow both parties to move forward independently.

An informal agreement between separating partners may not provide legal finality. Unless a property settlement is properly formalised, there may be a risk that a former partner could seek a property adjustment in the future.

Time limits also apply:

• Married couples generally have 12 months from the date a divorce order takes effect to commence property proceedings.
• De facto couples generally have two years from separation to commence property proceedings.

Obtaining advice early can help you understand your options and avoid unnecessary disputes.

How Does the Court Decide a Property Settlement?

Australian courts generally apply a four-step approach when determining property settlements.

Step One: Identify and Value the Property Pool

The first step is identifying all assets, liabilities and financial resources.

The property pool may include:

• real estate;
• bank accounts and investments;
• businesses and company interests;
• trusts;
• superannuation;
• vehicles and personal property;
• inheritances;
• liabilities and debts;
• other financial resources.

The value of the property is usually determined as at the date the matter is being considered, not simply the date of separation.

Once assets and liabilities are identified and valued, the net asset pool can be calculated.

Step Two: Assess Contributions

The Court considers the contributions made by each person throughout the relationship.

These may include:

Financial contributions

Examples include:

• income;
• savings;
• property purchases;
• mortgage repayments;
• business investments.

Non-financial contributions

Examples include:

• renovations;
• improvements to property;
• unpaid work that increases the value of assets.

Contributions as homemaker and parent

The law recognises that caring responsibilities and maintaining the household can be significant contributions to a relationship.

The assessment of contributions depends on the individual circumstances of each relationship.

Step Three: Consider Future Needs

The Court then considers factors that may affect the future circumstances of each person.

These may include:

• age and health;
• income and earning capacity;
• responsibility for children;
• financial resources;
• future care responsibilities;
• the impact of the relationship on earning capacity;
• other relevant financial circumstances.

This step recognises that an equal division of assets is not always an appropriate outcome.

Step Four: Is the Outcome Just and Equitable?

Finally, the Court must consider whether the proposed property division is fair in all the circumstances.

There is no automatic formula that determines how property must be divided.

Every relationship is different, and the outcome depends on the particular facts, contributions and future circumstances of each person.

Negotiated Property Settlements

Many property matters can be resolved without Court proceedings.

At Mathews Family Law & Mediation Specialists, we assist clients through a range of dispute resolution options, including:

• negotiation;
• lawyer-assisted settlement discussions;
• mediation;
• Family Dispute Resolution;
• collaborative approaches; and
• Court representation where required.

Our goal is to help clients achieve practical and legally sound outcomes while minimising unnecessary conflict and expense.

Property Settlement Lawyers Melbourne

Property settlements can involve complex issues including businesses, trusts, superannuation, inheritances and significant asset pools.

The Accredited Family Law Specialists at Mathews Family Law & Mediation Specialists provide strategic advice tailored to your circumstances and help clients throughout Australia resolve complex financial matters following separation.

Contact our team to arrange a consultation about your property settlement options.

About Vanessa Mathews — Accredited Family Law Specialist

This page was prepared and reviewed by Vanessa Mathews, Principal of Mathews Family Law & Mediation Specialists. Vanessa is an Accredited Family Law Specialist, Accredited Family Dispute Resolution Practitioner (FDRP) and Mediator who practises exclusively in family law. She assists clients throughout Australia with separation, divorce, parenting disputes, property settlements, financial agreements and other complex family law matters.

Helping families resolve conflict through specialist legal expertise and constructive dispute resolution.

Last reviewed: 24 July 2026

Disclaimer: This page provides general information only and does not constitute legal advice. Every family law matter is different and you should obtain advice tailored to your circumstances.