Protecting an inheritance can get a bit tricky if the person who receives the money then decides to put some or all of it, into the home that the family lives in. If that happens, the legal position then changes, and it changes quite dramatically. The basic rule is that any money that is paid towards the family home loses its status as separate property and becomes relationship property which is to be divided equally on separation. Many people don’t know this and are then very upset to realise that if they then separate from their partner or spouse, they have lost half of their inheritance.
By way of example:
Mary and John live in a home at 3 Hall St. It is worth $500,000. They have a mortgage of $100,000. John’s father dies. John inherits $240,000. He decides to pay the mortgage off so the Hall St property is freehold. He then decides to pay for him and Mary to go on an around the world cruise that costs $40,000. John then puts $100,000 into his bank account in his own name. After the cruise, John realises that Mary had in fact met Bob on the cruise and they were more than “friends”. John takes legal advice. He decides to separate from Mary. He is very upset to find out that he cannot get the money back from the mortgage repayment or the cruise. John does get to keep his $100,000 in his bank account.
What to do to prevent this happening
There are a number of options to manage this situation:
1. Don’t put money into the relationship and keep it in a separate bank account (i.e. keep it totally separate from the relationship): or
2. If you do want to pay off a mortgage or buy an item to be shared, have a contracting out agreement prepared by your lawyer which would protect the money that you invest into the property. If you then separate in the future you will be protected.
An expert’s advice can avoid insoluble problems
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