Inheritance and Divorce in Australia: Is It Split?

An inheritance feels like the one part of your life your ex has no claim over. It came from your family. They had nothing to do with earning it. A property settlement does not work that way.

The short answer is yes, an inheritance you have already received can be divided. It goes into the property pool with everything else you two own, and it is not quarantined just because of where it came from. What you keep turns mostly on when it arrived, what you did with it, and whether your settlement was ever finalised.

That last one decides more of these arguments than people expect, and it is the one thing still in your control. If you want the whole process from start to finish, start with property settlement lawyers. This page is about the money you inherited.

How the court decides what happens to your inheritance

Since 10 June 2025 the property framework has been set out in the Family Law Act in four plain steps, and the same four apply whether you sort it out between yourselves or a judge decides it.

1. Identify what each of you owns and owes. Every existing legal and equitable interest in property, plus the liabilities. An inheritance already in your name lands here, as property.
2. Weigh what each of you contributed. Money, work, care of the children, running the home, before, during and after the relationship. An inheritance counts as a contribution by the person who received it. How much weight it carries is the real question.
3. Look at where each of you is heading. Income, age, health, care of the children, earning capacity, and the resources each of you can call on.
4. Set the split. A percentage, then how the assets are divided to get there.

Running through all of it is one test – the order has to be just and equitable. The court does not have to make any property order at all, and if it is not persuaded that adjusting your property is just and equitable, it will not.

The property power sits in section 79 of the Family Law Act 1975 for married couples and section 90SM for de facto couples. The four steps and the June 2025 changes are set out by the Attorney-General’s Department and the Federal Circuit and Family Court of Australia.

What the court actually looks at

Four things decide how much weight your inheritance carries.

When was the inheritance received?

Timing does most of the work. Money that arrived early in a long relationship gets absorbed into decades of joint effort. Money that arrived last year, or after you separated, is much easier to keep hold of, because your ex contributed nothing to it and there has been no time for it to become part of your shared life.

How big is it next to the rest of the pool?

Size is relative, not absolute. A $100,000 inheritance inside a $3 million pool is small enough against the rest that the court can leave it with you. The same $100,000 inside a $250,000 pool is a large slice of everything there is to divide, and the other person’s needs still have to be met from somewhere.

What was your ex’s relationship with the person who left it?

Ask who the gift was really for. A parent who treated your partner as one of their own for twenty years, or who left the money to both of you, points to a joint benefit. A relative your ex met twice points the other way.

What did you do with the money?

This is where a lot of people undo their own position. A separate account in your own name reads very differently to a deposit on the family home. Once inherited money is commingled, spent on a jointly owned asset, or used to pay down a joint mortgage, it becomes hard to point at and say ‘that part was mine’.

Granger & Granger is the case that shows how those factors stack up. After a marriage of nearly 40 years, the wife received a $700,000 inheritance about 18 months before the couple separated. The court put it in, because excluding it would have undervalued what the husband had contributed across those decades. Timing was on her side and it still was not enough: weighed against a marriage of nearly 40 years and an inheritance of that size, how recently the money arrived did not outweigh the other factors.

Granger & Granger [2018] FCCA 51.

How it plays out: a worked example

The figures below are an illustration, not a real matter, but the reasoning is exactly how it runs.

Jack inherits $100,000 from his grandmother at 21. He meets Jill at 22. At 24 he uses the inheritance towards an $800,000 house in Sydney, and they marry when he is 25. Two children arrive. They separate at 45, and by the time proceedings start a year later the house is worth $1,600,000.

• The $800,000 house, now worth $1,600,000. Step 1. It is an existing interest in property, so it is in the pool.
• The original $100,000 inheritance. Step 2. It is Jack’s contribution, made before the relationship began.
• The $800,000 of growth across a 20-year marriage. Step 2. Both of them lived in it, paid for it and maintained it across those years, so neither of them can point at the growth as theirs alone.
• Two children, and 20 years of two careers shaped around them. Step 3. Care of the children and each person’s earning capacity from here.

On those facts the $100,000 gets recognised, but it is not carved out. It has become a small early contribution to an asset two people spent two decades building.

Change one number and the answer changes with it. If Jack had inherited at 44 rather than 21, the money would still be traceable and recent, so far more of it would still be identifiable as his. If he had inherited $2,000,000 instead of $100,000, the inheritance would be most of the pool rather than a fraction of it, so the percentage split would have to start from a very different place. If they had separated at 27, the marriage would have been short, so his contribution would carry far more weight in the result.

What about a future or expected inheritance?

You cannot lose what you have not received. An inheritance you expect is not property the court can divide, because step 1 identifies interests you actually hold, and an expectation of something under someone else’s Will is not one. That person can change their Will. They can spend the money. They may outlive the settlement by twenty years.

Where an expected inheritance can matter is step 3. If it is close to certain and close in time, a court can treat it as a financial resource, something you will be able to call on, which affects how the rest of the pool is divided rather than adding to it.

Two practical points. First, disclosure. The duty to be full and frank about your financial position now sits in the Family Law Act itself rather than only in the court rules, and it bites from the moment a property matter is being prepared. If you are asked about your financial circumstances, an inheritance you know is coming is not something to keep quiet about, and your lawyer needs to know either way. Second, do not stall. ‘I am about to inherit’ is not a reason to leave a settlement unfinished, and it is the delay, not the inheritance, that usually costs people.

That brings us to the part most people get wrong.

An inheritance received after you separate

The court looks at the current asset pool at the time of the hearing, not at separation.

So an inheritance that landed two years after you split, while the settlement sat unfinished, is still on the table. In Calvin & McTier the husband inherited $430,686 four years after separation. It formed part of a pool of about $1.3 million, and the Full Court dismissed his appeal against a 65/35 division in the wife’s favour. The Full Court has also made the principle plain in Holland & Holland: it is wrong to treat any existing interest in property as excluded or immune from a section 79 adjustment. There is no separate quarantine box.

That does not mean a late inheritance is treated like a house you bought together. Your ex contributed nothing to it, which the court weighs at step 2. Sometimes it is treated as your contribution and offset against other assets. Sometimes it goes into the pool and the percentages move. Sometimes it counts only as a financial resource.

Calvin & McTier [2017] FamCAFC 125 and Holland & Holland [2017] FamCAFC 166.

A matter we ran

A husband put off starting property proceedings for almost three years after separation. In that window, his wife inherited property. Because the settlement had never been finalised, that inheritance was pulled into the property pool and shared between them. The delay was his, the cost landed on her, and either of them finalising earlier would have closed the pool before the property arrived.

She did not lose part of that inheritance because the law was unfair to her. She lost it because the pool was still open when the property arrived.

So here is the legal lesson. The finalised settlement is the protection. Time passing is not.

How to protect your inheritance

Four moves, in order of how much they actually do.

1. Finalise the settlement. Nothing else on this list comes close. Once your property division is formalised through consent orders or a binding financial agreement, that pool is closed and what arrives afterwards is yours. Post-separation earnings and a post-separation inheritance stop being part of the argument entirely if you get the financial separation done early.

Watch the clock while you do it. For married couples, applications for property orders run 12 months from the date a divorce order takes effect. For de facto couples it is 2 years from the end of the relationship. After that you need the court’s leave, which turns on hardship, and it is not a formality.

2. Keep inherited money in a separate account in your own name. Not the joint account, not the offset on the family home. The moment it is mixed in, it is harder to identify and harder to argue for.

3. Keep the paper trail. The Will, the estate’s distribution statement, the bank records showing what came in and what it was spent on. Tracing an inheritance is an evidence problem before it is a legal one.

4. Get advice before it goes into a jointly held asset. If you are about to put inherited money into a property in both names or a joint venture, take the advice first. A binding financial agreement can quarantine an inheritance by agreement rather than argument, before or during a marriage or de facto relationship, or after it formally ends, and both of you must get independent legal advice for it to hold. If someone has suggested putting the inheritance into a trust, treat that as another reason to get advice rather than an answer in itself, because whether it helps at all turns on the detail.

One thing that protects nothing: the Will itself. A Will controls who receives the money. It has no say in how a property settlement treats it once you have it.

Financial agreements sit in sections 90B to 90D of the Family Law Act for married couples and sections 90UB to 90UD for de facto couples, with the technical requirements in section 90G (section 90UJ for de facto). The Federal Circuit and Family Court sets out what makes one binding. The time limits are sections 44(3) and 44(5).

Does this apply to de facto couples?

Yes, and the treatment is the same. The court divides property under the same power in the Family Law Act, the four steps are identical, and an inheritance is assessed exactly as it would be in a marriage. A de facto property settlement has no separate rule that protects inherited money.

The difference is the clock. A married couple’s 12 months runs from a divorce order, a fixed and easily proved date. A de facto couple’s 2 years runs from the end of the relationship, and when there is no divorce order to anchor it, the date you separated is itself something that can be argued about.

The de facto property power is section 90SM of the Family Law Act, the equivalent of section 79 for married couples.

Is there tax on an inheritance in a divorce settlement?

Two points, and then see an accountant.

Australia has no inheritance tax and no death duties, so receiving an inheritance is not a taxable event in itself. And where an asset moves between former partners under a court order or a binding financial agreement, the capital gains tax relationship-breakdown rollover generally defers the tax rather than triggering it. The person who keeps the asset carries the gain and pays only if they later sell.

Anything beyond that, the income the inheritance earns, an estate holding assets overseas, a property that was rented out, is a question for your accountant with the estate’s paperwork in front of them.

See the ATO on relationship breakdown and capital gains tax.

Does an inheritance affect spousal maintenance?

It can. Spousal maintenance turns on whether one person cannot reasonably support themselves and the other has the capacity to help. Working that out means looking at each person’s income, property and financial resources, so an inheritance you have already received is part of the picture, both for what it is worth and for the income it produces.

Eligibility sits in section 72 of the Family Law Act, and the factors the court weighs are in section 75(2) (section 90SF(3) for de facto couples). Our spousal maintenance page goes through it.

What to do next

If you have inherited money and your settlement is not finalised, the inheritance is not the urgent problem. The unfinished settlement is. Formalising it through consent orders closes the pool, and every week that it stays open is a week where the next thing to land in your name can be argued over.

Bring the estate paperwork and a rough list of what each of you owns, and a free ten minute discovery call will put the inheritance in the context of the whole property settlement process. Call me and my team on 1300 614 732 or send us a message, and we will tell you whether you have a real problem or just a worry. No pressure, no obligation.

Then get the settlement done, so the next thing that arrives is only yours.