How an inheritance is dealt with on divorce and dissolution in England and Wales

If you have inherited from your family or expect to do so in the future, it is vital that you understand how the inheritance is treated on divorce and what you can do to protect your wealth.

Is an inheritance automatically shared in a divorce?

The short answer is: it depends. Inheritance is often treated differently from other matrimonial assets, but its treatment depends on several factors, including:

Timing of the inheritance

An inheritance received prior to marriage is generally considered a non-matrimonial asset. However, if it has been mixed with marital assets, (a common example is when funds are used to buy a family home), it may lose its separate status. 

An inheritance received while married may be treated as a matrimonial asset, especially if it has been used for the benefit of the family.

Whether an asset is deemed to be matrimonial or non-matrimonial is important.

If an asset is matrimonial, it generally means that it has been built up, acquired or shared during a marriage. As a result, the starting point is that both parties should share equally in all matrimonial property. 

If an asset is non-matrimonial, it means that is has been brought into the marriage by one spouse only. Non-matrimonial assets are less likely to be shared equally. It may be possible to argue that that resource should be ring-fenced or otherwise preserved for the party bringing it into the marriage.

Other examples of what may be argued as non-matrimonial resources might be assets acquired before the marriage or relationship, those generated after it has ended, or assets gained through a family business.

Use of the inheritance

If inherited funds have been explicitly kept separate, (e.g., in a personal account or trust), it may be easier to argue that they should be excluded from sharing in the division of assets. However, if the inheritance was used to support the marital lifestyle, courts are more likely to treat it as a resource to be shared

Needs

If one spouse’s financial needs cannot be met without recourse to the inherited wealth, the inheritance and other non-matrimonial resources may be shared. A divorce settlement is always subject to the court’s discretion and the issues are outlined in s25 Matrimonial Causes Act 1973.

If there is insufficient wealth, it may not be possible to “ring-fence” or protect non-matrimonial assets.

But for wealthy individuals, whose needs are amply met, the distinction between what is capable of being shared as matrimonial assets — or not — is crucial to the ultimate settlement.

Length of the marriage

Longer marriages often blur the line between non-matrimonial and matrimonial assets, making it more likely that an inheritance will be included in the assets available for division. However, every case is different, and an examination of the circumstances will be required.

Estate planning and lifetime gifting

If wealth is being passed down through the family, your family members will inevitably take advice from their private wealth advisors, including accountants, tax advisers, wealth planners and private client solicitors.

However, it is vital that family law advice is not ignored. How the receipt of wealth before or during a relationship or marriage might be treated if there were a future relationship breakdown cannot be overlooked.

See Lessons in love: Why Standish v Standish demonstrates that it is vital for estate planning professionals and family lawyers to work together

Protecting inherited wealth from divorce or dissolution

If you are concerned about protecting your inheritance, there are active steps you can take including:

1. Consider a prenuptial agreement

A prenuptial agreement can explicitly state that you and your spouse/civil partner agree that an inheritance is excluded from the division of assets in the event of a divorce. While not automatically binding in England and Wales, courts generally uphold prenups if they are deemed fair, meet both parties’ needs and other safeguards are met, including whether both parties received independent legal advice. 

2. Establish a trust

Placing inherited wealth in a trust can offer significant protection, as it ensures the funds are kept separate from marital assets. However, courts can still scrutinise trusts if they are seen as a means to avoid fair distribution.

How it comes into play in the settlement will depend to a large extent on:

1. The nature of the trust — whether it can be said to have a ‘nuptial element’;
2. The powers afforded to the trustees;
3. The extent to which the trustees have exercised their discretion in favour of the beneficiary prior to a divorce.

Expert advice is required from tax, trusts and family lawyers when exploring this option.

3. Consider a postnuptial agreement

If circumstances change during your marriage, a postnuptial agreement can redefine how inheritance should be treated on divorce. A postnuptial agreement is similar to a prenup.

4. Keep inheritance separate

Avoid co-mingling inherited wealth with marital assets. Keeping funds in a separate account or using them exclusively for personal purposes strengthens the argument that the inheritance should remain untouched in a divorce. 

However, it is not fool proof, and pre and postnuptial agreements should be considered if an inheritance is received during the course of a marriage or civil partnership.

Final thoughts

Inheritance is a deeply personal matter, often tied to family history and legacy. Protecting it during divorce requires foresight, careful planning, and an understanding of the legal issues. 

Whether you’re inheriting significant assets or plans are being made to pass them down, taking proactive steps can make all the difference in safeguarding your financial future.

In particular, if you are worried about the breakdown of a personal relationship, possibly considering a divorce or dissolution, and you have concerns about any inherited assets, it is important that you seek legal advice from a solicitor with the necessary expertise.