How early inheritance is treated on divorce

Many parents offer financial support to their adult children by giving them an “early inheritance”. Such a boost in finances is welcomed with some using it to get a foothold on the property ladder

If you have concerns about your finances and an upcoming divorce and you feel you need legal advice, contact specialist family solicitor Mark Heptinstall of Slater Heelis Solicitors. He is recognised as a ‘Leading Individual’ in The Legal 500 and ranked in Chambers UK, and is described as having “the amazing ability to bring calm into troubled waters”.

When couples get divorced, they have to divide the matrimonial pot of assets in the fairest way possible. But how does fairness affect an early inheritance? Do they get to keep it all? These are difficult questions to answer, and emotions run very high in family cases, especially when one set of parents has gifted money or property by way of an early inheritance. This is why it is so important to understand the circumstances when such a gift may have to be shared or kept.

How the courts view early inheritance

The court will first need to determine whether the inheritance is a matrimonial asset, a non-matrimonial asset, or a mixture of the two. For a settlement to be reached, if the matrimonial assets are not sufficient to meet the couple’s needs, then it may be necessary for one party to give up some of their non-matrimonial assets in order to meet the other’s needs.

The advice here then is to avoid mingling early inheritance with the matrimonial assets and/or finances. Keep everything separate. For example:

• Keep inherited cash in an account in your sole name and avoid using it for family purposes
• Don’t live or holiday in inherited properties
• If you rent out an inherited property, have the rental income paid into a separate account in your sole name and don’t use the money for the family

Is there anything my parents can do from their side to protect my early inheritance?

The family courts have wide powers to redistribute assets on divorce and any parent making a gift of early inheritance needs to look at how best to ensure it does not become engulfed by the matrimonial asset pot.

Keeping records is key. It is essential to make detailed records of what was given, who it was given to, when it was given, and how much it is worth. It may also make things clearer from a legal perspective if the giver sets out any circumstances when they want the money or property returned. Although, even then, this could be overturned by a court on divorce if the parties needs are not met with the assets that are available.

Rather than making a gift of early inheritance, an option is to record the payment as a loan and possibly register it as a charge against the couple’s home. This illustrates that the payment is not a gift, and the money remains an asset of the giver, rather than one party to the marriage. Once again, care should be taken, because even if a loan is documented, the family court may view a loan from a parent as “soft” and therefore unlikely to be called in. If parents can demonstrate they will need the money in their retirement, then the court is more likely to regard it as “hard” and therefore repayable.

Any parent considering making a substantial gift to their adult child should ask them to enter into a pre or post-nuptial agreement before the gift is made. Or at the very least, tell their child to ensure the gift is not used to buy a family home or mingled with their spouse’s assets.

How do I protect early inheritance if I divorce?

If you want to make sure your early inheritance remains yours alone if you divorce, you should keep it in your sole name, or if you are planning to put any assets into joint names, at least recognise the implications of doing so. Essentially, for any asset you receive from outside the marriage, you should think twice before turning it into jointly owned property.

As mentioned above, one of the ways to help prevent this from happening is by entering either a pre or post-nuptial agreement. Although pre and post-nuptial agreements are not legally binding in the UK, the terms will probably be upheld by the court providing certain criteria is met when entering into it.