Inheritance in a property settlement

Is an inheritance part of the property pool?

Under the Family Law Act 1975, the starting point is that the court looks at all the property of the parties, whoever owns it and however it was acquired. An inheritance that you have received is property, so it is generally within the pool. That does not mean it is divided in half. It means it is considered, and then given weight as a contribution made by the person who received it.

That distinction matters. An inheritance is treated differently from a salary earned during the relationship, because it came from outside the partnership and not from the efforts of both partners. Many people are surprised to learn that it can be both included and still largely protected. For the broader picture, see our guide to what is in the property pool.

How different types of inheritance are usually treated

Situation	Usually treated as
Cash or property already received	Part of the pool, with a contribution credit to the recipient
Gift or inheritance before the relationship began	Initial contribution, often weighed strongly in shorter relationships
Inheritance spent on the family home	Contribution to the home, weighed against the length of the relationship
Inheritance still expected (will not yet in effect)	Not part of the pool; may be a financial resource
Interest in an open estate or trust	Depends on how certain and accessible it is

What decides how much weight it carries

There is no formula. When parties cannot agree, the court looks at contributions (financial and non-financial, including home-making and parenting), then at future needs, such as age, health, earning capacity and care of children, and then asks whether the result is just and equitable. Courts commonly consider:

• Size: a modest inheritance used for living costs has little lasting effect, while a very large sum is more likely to be treated as a distinct contribution.
• Timing: when it was received compared with the length of the relationship.
• Treatment: was it kept in a sole account, or put towards a shared home or investment?
• Length of the relationship: in a long relationship, contributions tend to merge over time.
• Needs: who will care for children and who has less earning capacity going forward.

The Australian Institute of Family Studies, Australian Institute of Family Studies, publishes research on how separating families divide property, and shows that most do so by agreement, not by court judgment. De facto couples are covered by equivalent provisions, as explained in our de facto relationships guide.

Received before, during or after the relationship

Timing changes the analysis. An inheritance received before the relationship is generally regarded as an initial contribution by that person. In a long relationship, its significance often fades as both partners contribute, while in a short relationship it tends to be more visible in the outcome.

An inheritance received during the relationship is a contribution made partway through. The court looks at what happened to it. If it paid for a family holiday it has largely gone; if it paid off the mortgage, it sits in the home. An inheritance received after separation but before settlement is still part of the pool at the time of settlement, but the court may give it greater weight as a contribution by the recipient, or treat it as relevant to future needs. Our property settlement after separation guide explains why it is wise not to leave settlement open for long.

Timing and typical significance (general guide only)

When received	Short relationship	Long relationship
Before the relationship	Often significant to the recipient	Weight usually reduces over time
During the relationship	Significant if kept identifiable	Often blended into the shared assets
After separation, before settlement	Included; weight varies	Included; weight varies

When inherited money was mixed into the family home

This is the most common scenario: a parent dies, you receive $150,000, and it goes into the mortgage. Years later the relationship ends. The money is no longer separate. It has become part of a shared asset, and the home is valued as one item in the pool.

That does not wipe out the recipient's contribution. The court (or the parties) can still recognise that a defined amount came from one side, through a larger percentage, or by treating part of the home's equity as originating from the inheritance. Keeping records matters: bank statements showing the deposit, the will or estate distribution statement, and the loan balance before and after. If you are planning a buy-out of the family home, an inheritance contribution can be built into the payout figure.

Inheritances you haven't received yet

A parent's will can be changed at any time, and a person is alive until they are not. For these reasons, an expected inheritance is not property and is generally not divided. However, it may be considered a "financial resource" when assessing future needs, particularly if the parent is elderly, unwell and the inheritance is very likely.

It can also matter for spousal maintenance. Our spousal maintenance guide explains how resources and earning capacity are weighed. If an inheritance arrives shortly after the settlement is finalised, the order generally stands, which is another reason a clear, final agreement is valuable.

Trusts, wills and estates that are still open

Estates can take many months to administer. An interest in an estate that is not yet distributed may be valued as an asset, or the parties may agree to wait and deal with it by a defined mechanism once funds are released. Family trusts add another layer: whether you are a beneficiary with real control or only a discretionary object makes a large difference to valuation. If the other side alleges an interest in a trust or business, get specialist advice. You may also find our guide on estate and inheritance dispute mediation useful where family members disagree about the estate itself.

If you are worried about assets being hidden or moved, see our guide to hiding assets in divorce. Both parties have a duty of full and frank financial disclosure, set out by the FCFCOA duty of disclosure.

Settling inheritance questions through mediation

Inheritance disputes are rarely only about money. They carry grief, family loyalty and a sense of fairness. A formal court process can make those feelings worse, and a judge's decision is not easy to predict. Mediation gives you something different: a neutral, confidential setting where you decide the weight of the contribution together, test options with your lawyers' advice, and record the result.

Typical outcomes include recognising the inheritance through a percentage adjustment, ring-fencing a specific amount, or keeping a specific asset out of the division entirely. The agreement can then be formalised as consent orders. Mediation may not be suitable where there is family violence or one party refuses to disclose, in which case exemptions apply and legal advice should come first. Court has its place, but rarely the best place to start.