1. This article discusses the treatment of a prospective inheritance to which a spouse involved in property settlement negotiations or legal proceedings might be entitled.

2. In the past several years, it has come to pass in a variety of cases, that clients will inherit whether in the short or long term.

3. With the value of real property and shares having grown since our parents invested, there are often now sizeable inheritances awaiting spouses.

4. How is the Court equipped to deal with this event?

5. The typical gut reaction of a client or their wealthy parent is “how dare they!”

6. The typical reaction of a family lawyer acting for the other party who covets the inheritance of the other is, “that’s going to make a big difference in favour of the non-inheriting spouse.”

7. Recently, the firm dealt with a prospective inheritance case where the inheritance was of several million dollars and was greater than the pool of assets available for division between the spouses.

8. Much was made of it by the other party.

9. However, a careful consideration of the law and cases indicates that the Court has been reticent to assist a “coveting” spouse.

Discussion

10. This is a domain into which the Court has historically, and should now, tread carefully. The Courts have been reluctant to provide any great benefit to spouses by means of making orders which provide for an immediate indirect benefit payable from the potential-beneficiary’s interest in his or her parent’s estate pre-death.

11. Her Honour Justice Moore, quite rightly described the practice as “ghoulish”.

12. Other Justices have not entered debate on the topic, but have certainly greatly limited the impact of inheritances in family law judgments so as if any adjustment is made at all, it is minor and reflects the fact that the inheritance does not arise out of the marriage and has no real connection to the contributions of the Wife or the Husband in the case under consideration.

13. In the case of White v. Tulloch-White (1995) 92-640, the Full Court confirmed that the instance of a likely future inheritance was certainly not to be considered as a financial resource and further, that a likely future inheritance will not be relevant at all in many Section 79 proceedings (see page 82,463).

14. The Full Court stated:-

“The ultimate criterion is whether the evidence is, or may be, relevant to the just and equitable process under s 79. An expectancy of an inheritance will not be relevant in many s 79 proceedings. In the end, relevance must depend upon the nature of the claims being put forward and to the facts of the particular case. For example, if the claims were based entirely upon contributions, it could not be suggested that the issue of expectancy could be relevant because no s 75(2) factors
would be involved. Where the claim includes s 75(2) factors, the nature or degree of suggested relevance between those specific claims and the expectancy in question would need to be analysed. That is to say, there must be a worthwhile connection between a specific element of the party’s case and the suggested expectancy.

This accords with what we understand to be the general practice at trials in this Court. That is, the initial relevance in a particular case needs to be established; once it is it becomes a question of weight and degree. The issue is then approached by considering it in a broad, general way by taking into account the age of the relative or other relevant testator, state of health, some general assessment of his or her financial position and some general assessment of suggested inheritance
expectancy. Detailed evidence of these matters is rarely allowed. Although that approach has a deal of imperfection about it, it is a process where the weight, if any, to be attached to it may be difficult to identify, it is, we think, a process which is much to be preferred…”

15. The Full Court went on to say:-

“The central point of proceedings under s. 79 remains the division of the property of the parties to the marriage and thus the essential concentration should be upon the financial circumstances of those parties. This is emphasised by the circumstance that the thrust of almost all of the matters in ss. 79 and 75(2) is to direct the Court to consider various aspects relating to the parties themselves (or their children). As a matter of principle and day to day management of trials, it would not ordinarily be appropriate to perform that exercise largely by detailed reference to the property of a third party or to require a third party to make a detailed disclosure of his or her testamentary intentions and financial circumstances. It would be highly undesirable that in a property proceeding between husband and wife significant amounts of time should be devoted to a
detailed examination of such matters.”

16. The reluctance of the Court to deal with matters such as that raised by a claimant spouse, was again demonstrated in the unreported decision of C v M, a decision of the Honourable Justice Moore delivered on the 30th August 2000.

17. The manner in which Her Honour dealt with the issue of the prospective inheritance in the case before her was remarkable, in that she clearly showed her absolutely begrudging reluctance to look at the prospective inheritance and take that into account.

18. After making an assessment of contribution on a 60/40 per cent basis in favour of the wife Her Honour went on to examine and take into account the matters referred to in Section 75(2). When looking at Section 75(2)(o) Her Honour said at page 32:

“It was submitted on behalf of the husband that the wife has an expectation of inheritance from her mother in relation to a property situated in Murrumburrah. Her mother, now aged 90 years has lost testamentary capacity, it would appear, and is cared for in a nursing home. The wife was asked to produce her mother’s last Will and Testament and did, in fact produce a document. She is the sole beneficiary of her mother’s estate under that document, as I apprehend the situation.

In making his submissions along these lines Mr Foster relied upon the Full Court decision in De Angelis and De Angelis. This argument about prospective inheritances is becoming a feature of matters being litigated in more recent times, no doubt as a result of this decision being given some prominence in professional writings, and evidence is being sought to support it – particularly the production of the Will of a relative of one or other of the parties. In my experience more often than not
when it has been raised in a particular case, there has been a misunderstanding of the basis upon which De Angelis proceeded. On my reading, it is confined to a narrow band of circumstances and is not an invitation to intrude and offend by a ghoulish pursuit of the current Will of a parent of one party, merely because that parent may be of advanced years, or of concessions about the value of their property.”

(Emphasis added by author of this article)

19. Despite her obvious reluctance at the prospective inheritance line of argument Her Honour after citing paragraphs from De Angelis went on to say at paragraph 85 as follows:

“85 As it happens in this case, I think the circumstances do fall within the category of case to which the Full Court was referring. I think it appropriate therefore, to have regard in a general way to the likelihood that the wife will inherit her mother’s property in the not too distant future”.

20. Her Honour did not state what precise percentage she adjusted for this factor. But, when one considers the case, it must have been quite a minimal one. As it happens, Her Honour adjusted in the Wife’s favour (the prospective inheritor) by 7.5% to take account of the following factors:-

a. Differential in earning capacity (Husband’s was greater);

b. Differential in superannuation holdings (Husband’s was greater);

c. The Wife had repartnered with a Mr A and financial benefits flowed to her as a result;

d. The Wife had a large prospective inheritance (comprising her 90yo infirm mother’s unencumbered property in Murwillumbah NSW).

21. Certainly, it does seem ghoulish, unjust and inequitable, that a claimant spouse seeks to claim, in effect, a share in the estate of a person not yet deceased and to which the claimant has made no contributions.

22. The Court has continued to have tremendous difficulty in dealing with this type of matter and it appears has struggled to even offer a 5% adjustment in cases where the inheritance reaches a magnitude of similarity to the asset pool.

23. As stated, adjustments have routinely been very small, the largest of note was 10% in the case of De Angelis (2003) FLC 93-133, which was concerned with a case where the Husband (the spouse receiving the adjustment) had contributed to the property likely to be inherited by the Wife in a very significant manner.

24. Mr De Angelis was also unwell/unhealthy, was already 65 years of age and was supporting adult children in his home in a way the Court took into account in determining his needs. Doing the best one can, it seems that the adjustment can be assessed as having been relatively small in circumstances where De Angelis concerned an inheritance of roughly the same size as the pool of assets available for division.

25. However, Mr De Angelis had been making contributions to the property making up the estate so as to preserve it and, it seems on reading the Judgment, actually assisted in having Mrs De Angelis’ aunt draw and makethe Will which bequeathed in favour of the Wife.

26. In the case of HDM and MM and SJM [2006] FAM CA 47, the reluctance of the Court was demonstrated again, this time with a second (after Moore J’s decision in C and M (ibid)) interesting reverse consideration. In HDM, the Wife was to receive a prospective inheritance from her 88 yo mother, to the tune of $1.3 million in comparison to an asset pool of $1.5 million.

27. Because of assistance provided by the Wife’s parents ($200,000) over the years, the Wife achieved 55% on contributions and a further 20% for Section 75(2) factors, which included a consideration of the $1.3 million prospective inheritance.

28. It seems trite to point out that if the Wife’s Section 75(2) adjustment (in the face of a high earning Husband) was reduced at all, it was certainly not by much.

29. In the majority of cases, the claimant spouse will not be able to prove or be said to have any contributions-nexus to the prospective inheritance.

30. The majority of cases will also concern parties who have some years to live and who retain the right and capacity to change their Will in whatever manner they consider appropriate.

31. The Court must take into account that it ought not enter into “social engineering” and seek to, developing the theme of ghoulishness, re-write Wills or order/give effect to premature distributions from estates of the living who are third parties, not parties to the relevant marriage and unaffected (and unassisted) by contributions made within the marriage.

32. In many cases, it is submitted that the starting point will be to suggest that absolutely no adjustment should be made on this ground.

33. If the Court is minded to make any adjustment it should be argued to be no more than 5% of the matrimonial asset pool.

Conclusion and Comment

34. If you are faced with this situation, talk to your family lawyer or talk to us about the issue. Don’t leave it be and hope for the best.

35. Parents can be encouraged to undertake some estate planning.

36. Parties can enter binding financial agreements whereby each foregoes claims to the estates or gifts which might flow from parents.

37. If at the end of the day, nothing can be done to prevent the other party raising the same before the Court, it is not the end of the World, in that despite the protestations of the “coveting” spouse, the adjustment entitlement they can assert for is quite a minor one, particularly arising out of the ghoulish nature of the argument and the lack of contribution to what might eventually be inherited.

38. Please consult a lawyer about your individual facts. Your subjective case has not been considered in the writing of this article and you should not rely upon general articles in your case unless legal advice to the same effect has been obtained by you.

Dean Evans, Evans & Company Family Lawyers