How is an inheritance dealt with in a property settlement?

It is not uncommon in a relationship, whether marital or de facto, for a party to the relationship to receive the benefit of an inheritance at some stage in the relationship.  The inheritance may then be utilised to benefit both parties and it can often provide much needed financial assistance to help the couple acquire significant assets such as a family home or investment property.

But what happens if the parties end the relationship?

The issue of how such an inheritance is dealt with upon separation often results in bitter disputes between the parties.  This is due to the common misconception that the inheritance falls into a separate protected category of asset and remains outside of the asset pool available for distribution.

Parts VIII and VIIIAB of the Family Law Act 1975 provide for the division of the property of parties to a marriage and de facto relationship.

Section 44(3) of the Family Law Act 1975 provides a time limit of 12 months from the date of a divorce order becoming absolute for bringing property proceedings.

There is a well-established four step process undertaken by the Court in determining property settlement calculation:

  1. Identifying and valuing the net property of the parties;
  2. Assessing the financial and non-financial contributions of the parties;
  3. Considering the future needs of the parties; and
  4. Considering whether the orders proposed are just and equitable.

The question of whether inheritances should be treated different from other property was addressed in the case of Bonnici and Bonnici (1991) FamLC where the Full Court of the Family Court found that

“… a property does not fall into a protected category merely because it is an inheritance”

and that the answer will “depend on the circumstances of individual cases.”  The inheritance will usually be considered as a contribution made by the recipient and otherwise will not be excluded from the asset pool.  The individual facts and circumstances of each case must be taken into account. The factors to be considered relate to the timing of the receipt of the inheritance and the impact the inheritance has on the size of the asset pool.

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Timing of Inheritance

Where an inheritance is received by a party prior to or at the beginning of a relationship it will usually be considered as an initial contribution of that party.  Over time, the impact of the inheritance will lessen as a consequence of the other spouse’s contribution and it may have limited impact on a party’s entitlement.

If the inheritance is received by a party during the relationship and applied for the benefit of both parties, the inheritance will likely be considered a financial contribution to the joint assets by the receiving party.

Where the inheritance is received late in the relationship or post separation, except in unusual circumstances, the non-receiving party would find it difficult to establish that they have contributed towards the inheritance received.  As such, it may be possible for a late inheritance to be quarantined from the asset pool, or for two separate pools to be established with differing splits in the pools based on contributions.

Size of Asset Pool

The size of the asset pool available for distribution can have a significant effect on the way an inheritance is treated in a property settlement notwithstanding the timing of the inheritance.

Where the asset pool available for distribution is limited in comparison to the amount of the inheritance and excluding the inheritance from the asset pool would result in an unjust and or inequitable division of the asset pool, even a late inheritance may form part of the asset pool for distribution.  The Court is afforded a wide discretion in this regard.

In Bonnici and Bonnici, the Court stated that “if there are ample funds from which an appropriate property settlement can be made, and the just result arrived at, then the fact of a recently acquired inheritance would normally be treated as an entitlement of the party in question.” 

However, the inheritance received by the husband in Bonnici and Bonnici (1992) FLC formed a significant portion of the total asset pool of the parties.  The Court considered and was satisfied that the wife’s contributions as parent and homemaker were such that it was just and equitable for an adjustment to be made for her contributions taking into account the inheritance received by the husband.  If the asset pool excluding the inheritance had been significant enough to satisfy the entitlements of the wife, then the recently acquired inheritance of the husband likely would have been treated as an entitlement of the husband.

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As set out above, the individual circumstances will be considered in determining whether or not and the extent to which an inheritance forms part of the asset pool for a property settlement.

If you have any questions on the above please contact Shire Legal on 9526 3444 to book an appointment with one of our solicitors.

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What to do if your property is damaged between exchange and settlement?

With the wild weather in New South Wales of late, the question has come up – what happens if the property you are buying is damaged between exchanging contracts and settlement? What are your rights? Does the vendor have to fix the damage? Do you have to settle?

Property law

Part 4 Division 7 of the Conveyancing Act 1919 (NSW) offers some protection to purchasers if the property is damaged.  Exactly what protection is available will depend on the extent of the damage.

Minor damage

If the damage is minor then there are a number of options:

  • the owner of the property may agree to make the repairs to the property before settlement; or
  • an abatement (or reduction) of the purchase price may be negotiated for the loss of value or the agreed cost of the rectification works.

What’s appropriate will depend on the circumstances of each case.

For example, if you have purchased a property and need to move in because you have given notice to your landlord, it may suit you better to negotiate an abatement of the purchase price and make the repairs yourself once you have moved in.  Keep in mind though that it is not just a matter of the cost of rectification but also the inconvenience of having to make the repairs.

It may be the vendor would prefer to carry out the repairs prior to settlement and claim it on their insurance particularly if the damage was caused by a tenant.

Substantial damage 

In the event that the property has been substantially damaged so as to “..render the land materially different from that which was purchased…” you may have grounds to rescind (that is, pull out of) the contract and the deposit and any other monies paid in accordance with the Contract refunded to you.  You need to be able to show that you would not have purchased the property if the damage already existed when you first inspected it.

The Courts will consider various factors when a Contract is rescinded as a result of damage.  For example, if you were purchasing the property with plans to demolish the existing house and develop the land, it is less likely that the Courts will consider it reasonable to allow the rescission since the damage would not be interfering with your intended demolition.

The Conveyancing Act sets out strict timelines to exercise rights arising from damage to property, so it is essential that you do a final inspection of the property before settlement and as soon as you become aware of any damage you should discuss your options with your solicitor or conveyancer.

Contact Shire Legal on 9526 3444 if you have any questions.

When is stamp duty payable? How much do I need to pay?

OSRTransfer of land

Stamp duty is generally payable on transfers of ownership of land or business within New South Wales (unless you are entitled to a stamp duty exemption or concession).  Stamp duty is paid to the New South Wales Office of State Revenue.

A stamp duty calculator is available on the Office of State Revenue’s website.

First Home Owners

First Home Owners who purchase or build a new home (with a total value less than $650,000) may be eligible for a $15,000 grant (aka “FHOG”) (the grant will reduce to $10,000 in January 2016).

There are also exemptions/concessions on stamp duty for first home owners under the First Home New Home Scheme:

  • for new homes valued up to $550,000 – exemption
  • for new homes valued between $550,000 and $650,000 – concession
  • for blocks of land valued up to $350,000 – exemption
  • for blocks of land valued between $350,000 and $450,000 – concession

Transfer to your Self-Managed Superannuation Fund (SMSF)

There is a reduced duty of $50 payable on transfers of title from your name to your SMSF (section 62A Duties Act 1997 (NSW)) (subject to certain rules set out in the section).

Transfer pursuant to a family law property settlement

If the ownership of a property is transferred as a result of a family law property settlement (e.g. from both spouse names to just one name), then the transfer is exempt from stamp duty.

Transfer of a deceased estate property

A transfer of a deceased’s property to the legal representative (executor) or a beneficiary, pursuant to the Will, is exempt from stamp duty.

Establishment of a trust

The establishment of a trust, such as a family discretionary trust, is subject to $500 stamp duty.

When is stamp duty payable?

Stamp duty is payable within 3 months after the duty to pay liability arises, otherwise interest will be charged.

However, if the property is being purchased “off the plan”, then stamp duty is payable:

(a) at settlement/completion; or

(b) after 12 months from the date of exchange,

whichever occurs first.