Anyone who’s been through it will tell you—divorce is tough, emotionally, financially and even physically, if it gets stressful enough.
One major concern is protecting your inheritance and family gifts. You would think inheritances and gifts are off-limits during property settlements, right?
Wrong, they’re not.
Under family law, inheritances and gifts can be pulled into the “marital property pool” — especially if they’ve been co-mingled with joint assets.
The result? You could lose part (or all) of your inheritance. It may not seem fair,, but it’s true.
However, there are steps you can take to protect your family’s legacy , and that’s what we will look at — how to keep your inheritance and family gifts safe during a divorce.
The legal insights provided in this article come from Australia, and reference the rules around divorce in Australia.
Are my inheritance and gifts part of the property pool?
As stated, there’s a common misconception that inheritances and gifts are untouchable in divorce settlements.
How the court views inheritance and gifts
If you received inheritances/gifts before marriage, they are more likely to be treated as “separate property.” However, this is not guaranteed.
If received during the marriage, there’s a good chance the inheritance will be included in the property pool. And if you’ve co-mingled with shared assets (such as joint bank accounts), then you can pretty much guarantee it..
If your inheritance was used or partially used to purchase a shared home or other asset, such as a car, it may be treated as a contribution to the marriage.
So, first ask yourself:
- When was the inheritance or gift received?
- How was it used (e.g., invested, co-mingled, or kept separate)?
- Do both you and your partner have access or control over it?
Key strategies to protect your inheritance and gifts
Keep inheritance and gifts separate
There are a number of precautionary steps you can take:
- Don’t deposit inheritance into joint accounts.
- Keep funds in a separate personal bank or investment account.
- If it’s cash, avoid using it to purchase shared property, like the family home.
- Use trusts, or family trusts, to shield inheritances from division.
Use a Binding Financial Agreement (BFA)
Think of a Binding Financial Agreement (BFA) as a “pre-nup” or “post-nup” for your assets.
It’s a formal legal agreement that spells out exactly how property, inheritance, and gifts will be divided if you and your partner separate.
When should you get one?
Ideally, before marriage (like a pre-nup) — but don’t worry if you’re already married. You can create a BFA at any time.
Why does it matter?
It locks in your rights to keep your inheritance and gifts, even if the relationship ends.
Pro tip: To make it legally binding, both partners need to get independent legal advice, and the agreement must be properly drafted by a lawyer.
Use a Trust to protect your inheritance
Want to keep your inheritance safe? Put it in a trust.
Here’s why it works: When inheritance is placed in a discretionary family trust, it’s often seen as belonging to the trust — not you. This makes it more difficult to include it in the marital property pool during a divorce.
Key tip: You shouldn’t be the sole “trustee” of the trust. If you are, the court might still see it as your personal asset.
How to set it up?
Talk to a family lawyer. They’ll help you create a trust with strong safeguards to protect your inheritance from property division.
Keep proof of your gift or inheritance
A gift or inheritance was meant for you and only you, so make sure you can prove it.
How? Keep written evidence. This could be a letter or an email from the person who gave it to you. It should clearly state that the gift was intended for you alone..
That way, if there’s ever a dispute during a divorce, this proof can be used in the court of law proving that the gift shouldn’t be included in the marital property pool.
Remember, No proof = no protection.
Protecting number one
Unfortunately, yes, divorce can be messy. But fortunately, losing your inheritance doesn’t have to be part of the story. With a little planning and the right legal tools you can protect your financial legacy.
The key is to act early. Don’t wait until until it’s too late!
The other important factor is to get professional legal advice.
Key points
- Keep it separate. Don’t mix your inheritance or gifts with joint assets — keep them in a separate bank account or trust.
- Lock it in with a BFA. A Binding Financial Agreement (BFA) can legally protect your inheritance from being divided.
- Use a Trust to protect your inheritance. It more difficult to include it in the marital property pool during a divorce.
- Get proof. Hold onto any written evidence (like letters or emails) showing the inheritance or gift was intended for you alone.
Marshall Thurlow is Director and Founder of Orion Marketing Pty Ltd. He is a digital marketer with expertise in SEO, website design, content marketing, and project management.
