There is a common misconception that after you have divorced your spouse, they cannot make an inheritance claim against your estate while you are alive or after you die. But provided they did not remarry, an ex-spouse may bring an inheritance claim. Such claims tend to be brought in cases where ongoing financial support, for example, payment of spousal maintenance as part of the divorce settlement, ends when they die. In addition, there are circumstances where an inheritance is included within the available matrimonial assets for division upon divorce.
Inheritance received before or during marriage
If your inheritance was received before you married, your ex-spouse may be entitled to make a claim if they benefitted from the inheritance during the marriage.
For inheritance received during the marriage, the court will probably class the inheritance as “joint property”. This is particularly the case where any money was paid into a joint account or a property was transferred into joint names. The Court would assume that the inheritance was treated as a benefit for all the family, rather than for one person.
This situation may be prevented by entering into a pre-nuptial agreement prior to the marriage taking place, or a post-nuptial agreement after you’re married, which will help you ring-fence the inheritance from any future claims.
You are likely to have to share your inheritance:
- If the inheritance has been merged with other matrimonial assets. This might be the purchase of the family home, using the money to pay off an existing mortgage on the family home, or funding the family in another way.
- You, your spouse, and any children’s needs cannot be met by using matrimonial assets alone.
It is more likely you will be able to keep your inheritance provided:
- You have kept it completely apart from every other matrimonial asset
- You, your spouse, and any children’s needs can be met by dividing the other assets alone.
Ideally, the court would prefer not to have to order you to hand over your inheritance, but their guiding principle is one of fairness, both parties benefiting equally from the joint fruits of their marital labour. Inheritance, such as gifts and pre-marriage wealth, does not come from the joint efforts of the parties, and so there is no general presumption that it should be shared. However, the “sharing principle” will always take a back seat to the central rule that parties should be able to leave a marriage with their basic needs met. If that requires dipping into an inheritance to achieve that aim, the court will order it.
Inheritance received after separation or divorce
If you are going through divorce proceedings and are expecting to receive an inheritance in the foreseeable future, it would not be taken into consideration as part of the financial settlement. But if you are likely to inherit in the immediate future, the legacy could be included in the divorce pot. Sometimes, a solicitor may advise waiting to settle financial issues until after the inheritance has been received.
An ex-spouse may still be entitled to claim a future inheritance after a divorce has been finalised if no clean break order or consent order has been put in place.
Can inheritance be protected from inclusion in divorce assets?
Drafting either a pre-nuptial (before getting married) or post-nuptial (after getting married) agreement explicitly excluding any inheritance might carry some weight with the court if it considers the agreement is fair, and is sure both parties agreed, and the party potentially acting to their detriment, was not bullied into signing it.
It may be possible to ask the person bequeathing the legacy to look at trust or estate planning, which could help to protect it. This is likely to apply to larger estates and legacies.
Can an ex-spouse claim on my estate after I die?
Your ex-spouse can claim against your estate after you die if:
- Your spouse has not remarried or entered into a civil partnership
- You did not reach a formal financial settlement, enter into a consent order excluding future inheritance claims, or obtain a clean break order
- The claim on the inheritance is made within six months of the Grant of Probate being obtained by the executors.
Any claim on inheritance is made under the Inheritance (Provision for Family and Dependants) Act 1975. Spouses who were receiving spousal maintenance at the time their ex-spouse dies are considered to be a dependant and could therefore claim under the legislation. This is why it is so important to protect your estate and any future inheritance you may receive.
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Protecting future inheritance after divorce
There are several ways to protect future inheritance following divorce:
Consent Orders
If you are going through divorce proceedings, it is vital to consider entering into a Consent Order. This requires both parties to come to an agreement, which can be negotiated via solicitors or agreed between you regarding the financial aspects of the split. Once this is agreed, a consent order is drafted and sent to the court. Within the consent order, clauses relating to future inheritance can be included, which prevent any future claims being made.
Estate Planning
Most people who are leaving someone an inheritance tend to want it to go to someone in particular. If there is the potential for claims on future legacies, it is sensible to speak with a professional specialising in trust and estate planning.
It is becoming increasingly common for trustees who are distributing legacies from a trust to insist on a post-nuptial agreement being put in place before distributing the legacy to a married beneficiary.
Pre and Post Nuptial Agreements
Both pre and post-nuptial agreements are ways to protect your future inheritance and current assets. These agreements identify ownership of certain assets and highlight how the finances are to be dealt with after divorce.
It is important to note that pre-nuptial and post-nuptial agreements are not legally binding in the UK, although they will be considered by the court when looking at the finances of both parties, before and during the course of the marriage.
As with many things surrounding the divorce process, whether it will be necessary to share an inheritance with your ex-spouse is a matter for the court to decide, and this will always include an assessment of what it considers being fair within the specific set of circumstances.
Case studies/examples of inheritance claims after divorce
The treatment of inheritance during divorce proceedings varies based on individual circumstances, particularly concerning the timing of the inheritance and its integration into marital assets.
A notable example is the case of Critchell v Critchell [2015]. Here, the couple agreed the wife would retain the family home, with the husband having a charge over it, entitling him to 45% of its value upon certain future events. Shortly after this agreement, the husband inherited a substantial sum following his father’s unexpected death. The wife appealed, arguing that this significant change in circumstances warranted a revision of the financial settlement. The court agreed, removing the husband’s charge over the property, emphasising that the inheritance altered the financial landscape sufficiently to revisit the original agreement.
In Davies v Davies [2012], the husband inherited a hotel before the marriage, which both spouses later managed during their 13-year relationship. Upon divorce, the court faced the challenge of distinguishing between non-matrimonial and matrimonial assets. The wife was awarded nearly half the hotel’s value, reflecting her contributions and needs. This case underscores the complexities that courts encounter when dealing with inherited assets that have been actively involved in the couple’s joint endeavours.
While inheritance can be a contentious issue in divorce proceedings, the court strives for fairness, considering the unique circumstances of each case. Proper planning and clear agreements can help in safeguarding inherited assets.
The role of trusts in protecting inheritance
The role of trusts in safeguarding inheritance cannot be underestimated. Trusts are legal arrangements that allow individuals to transfer assets to trustees, who manage these assets for the benefit of designated beneficiaries. They provide a proactive means to shield inheritance from division during divorce settlements, offering both legal and financial advantages.
Why use trusts?
Inheritance received before or during a marriage can be vulnerable to claims during divorce, especially when it has been merged into the matrimonial asset pot, such as being used to purchase a family home or pay joint expenses. By placing inheritance into a trust, the assets are legally separated from an individual’s personal ownership, reducing the likelihood of them being considered part of the divisible marital assets.
Trusts are particularly valuable when protecting generational wealth, ensuring assets are preserved for future heirs. For instance, a family trust can safeguard an inherited property or financial portfolio, making it accessible only to specific beneficiaries under defined terms, regardless of their marital status.
Types of trusts commonly used
- Discretionary trusts: These provide trustees with flexibility in managing assets and distributing income or capital to beneficiaries as they see fit. In a divorce, the court is less likely to consider discretionary trusts as the beneficiary’s absolute property, making them a strong option for protecting inheritance.
- Life interest trusts: These trusts grant beneficiaries the right to use or benefit from an asset (e.g., live in a house) during their lifetime, without transferring full ownership. Upon their death, the asset passes to a secondary beneficiary, such as children from a previous marriage.
- Bare trusts: In these, the beneficiary holds an absolute interest, but the assets are legally under the trustee’s name, potentially adding a layer of protection.
Practical considerations
When setting up a trust to protect inheritance, specialist legal advice is essential to ensure it is structured correctly and cannot be easily challenged. The court may investigate the timing and intent behind a trust’s creation to determine if it was established to evade fair financial distribution in a divorce. Establishing the trust well in advance of marital issues can strengthen its validity.
By utilising trusts, individuals can manage inheritance effectively, securing their wealth while minimising the risks of claims in divorce proceedings. However, trusts must be transparent, carefully planned, and compliant with legal standards to maximise their protective potential.
Tax implications of inheritance claims after divorce
The division of assets during divorce proceedings, particularly inheritance, carries important tax implications under UK law. These complexities often arise in the context of inheritance tax (IHT), spousal exemptions, and the treatment of assets when they are transferred or distributed. Understanding these implications is vital to ensuring compliance and managing tax liabilities effectively.
Inheritance tax (IHT) considerations
Inheritance tax is levied on an estate exceeding the current nil-rate band of £325,000. Divorce does not directly trigger IHT, but subsequent changes in asset ownership or inheritance claims can affect the tax position.
For example, if a divorcing spouse is awarded an asset from an estate during financial settlements, its future tax liability will depend on how and when that asset is passed on to beneficiaries. The original spousal exemption for IHT does not apply to divorced couples, meaning subsequent transfers between them could become taxable events.
Spousal exemptions and divorce
During marriage, assets transferred between spouses are generally exempt from IHT, regardless of their value. However, upon divorce, this exemption ceases. If a former spouse inherits assets or is allocated part of an estate post-divorce, these assets may contribute to their taxable estate, potentially creating an IHT liability.
For example, if one spouse receives a lump sum payment or property from the estate as part of a divorce settlement, its value is added to their estate for IHT purposes. Inheritance received during or after the divorce could also reduce the available nil-rate band upon death, leading to higher tax liabilities.
Asset transfers and Capital Gains Tax (CGT)
In addition to IHT, Capital Gains Tax (CGT) may apply if assets, such as property or investments, are transferred as part of a divorce settlement. Although transfers between spouses during the tax year of separation are CGT-free, any transfers after this period may attract CGT based on the market value of the asset.
Mitigating tax liabilities
To minimise tax implications:
- Use trusts: Placing inheritance into a trust can help reduce IHT liability by removing the asset from an individual’s taxable estate (see above).
- Plan asset transfers: Structuring settlements to occur during the tax year of separation may avoid unnecessary CGT.
- Seek professional advice: Consulting tax and legal experts ensures compliance with complex tax regulations.
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