Inherited money and gifts

The starting point: non-matrimonial property

English law distinguishes between:

Matrimonial assets: Property accumulated during the marriage through joint efforts – typically divided equally or fairly between spouses.

Non-matrimonial assets: Property that came from outside the marriage, such as:

• Inheritances
• Gifts from family or friends
• Assets owned before the marriage
• Personal injury compensation

Inheritance falls into the non-matrimonial category. The starting point is that it shouldn’t automatically be shared – it was given to you personally, not to your marriage.

But this is only the starting point. Unlike some countries, England and Wales don’t automatically exclude inheritance from divorce settlements. Courts have discretion to include it if fairness requires.

When inheritance may need to be shared

Meeting reasonable needs

The most common reason inheritance is included in settlements is to meet the reasonable needs of both parties.

If the matrimonial assets (house equity, pensions, savings accumulated during marriage) aren’t enough to house and support both spouses and any children adequately, courts can look to non-matrimonial assets, including inheritance.

Example: The family home has £200,000 equity. The couple have modest pensions and little savings. One spouse inherited £300,000 which they kept separate. If dividing only the matrimonial assets leaves one spouse unable to afford suitable housing, the court may include some of the inheritance to meet that need.

The priority is ensuring both parties can move forward with a reasonable standard of living – and children’s needs come first.

Mingling with matrimonial assets

If you’ve mixed inherited money with family finances, it becomes harder to argue it should stay separate. This is called “mingling” or “matrimonialisation.”

Examples of mingling:

• Using inheritance to pay off the family mortgage
• Putting inherited money in a joint account
• Using inheritance to buy the family home or a holiday home in joint names
• Spending inheritance on family holidays or living expenses
• Using inheritance to support your spouse’s business

Once mingled, it’s difficult to separate again. The longer ago the mingling happened, the more the inheritance is treated as shared.

Long marriages

In long marriages, the distinction between matrimonial and non-matrimonial assets often becomes less important. Courts recognise that over 20 or 30 years, finances become intertwined and both spouses have contributed to building a life together.

In a very long marriage, even clearly non-matrimonial assets like pre-marital property or early inheritance may be included in a sharing exercise.

Timing of inheritance

Inheritance before marriage: More likely to be non-matrimonial, especially if kept separate throughout the marriage.

Inheritance during marriage: Still non-matrimonial if kept separate, but more likely to be mingled with family finances over time.

Inheritance after separation but before divorce: Generally stays non-matrimonial, as it arrived after the marriage effectively ended.

Expected future inheritance: Courts are very reluctant to speculate about future inheritance. A living relative might change their will, remarry, need care home fees, or simply live much longer than expected. Don’t count on inheriting, and don’t expect courts to factor it in.

Gifts from family

Gifts from parents or other family members are treated similarly to inheritance. They’re non-matrimonial property that may be protected, but:

• Large gifts that enabled significant purchases (house deposits) may be considered mingled
• Gifts given “to the couple” rather than to one person are more likely to be shared
• The court may scrutinise sudden “gifts” during divorce proceedings

“Soft” loans from family

Sometimes parents provide money described as a “loan” rather than a gift. Courts look at the reality:

Genuine loans with written agreements, defined terms, and actual repayments are treated as debts that reduce the assets available for division.

Soft loans with no real expectation of repayment, no interest, and vague terms may be disregarded or treated as gifts.

If your parents want to help you by providing money that doesn’t become a matrimonial asset, proper documentation and genuine loan terms are important.

Protecting inherited wealth

Keep it separate

The single most important step is keeping inherited money separate:

• Maintain a separate account for inherited funds
• Don’t put inheritance into joint accounts
• Keep records showing the source of funds
• Don’t use inheritance for joint purchases

This creates a clear trail showing the money remained non-matrimonial.

Prenuptial and postnuptial agreements

A well-drafted prenup or postnup can record that certain assets (including anticipated inheritance) should be treated as non-matrimonial. While not automatically binding, courts give significant weight to such agreements if:

• Both parties received independent legal advice
• There was full financial disclosure
• The agreement wasn’t signed under pressure
• The terms are fair

Even if you didn’t have a prenup, a postnuptial agreement during marriage can help protect future inheritance.

Trusts

If parents or grandparents are concerned about their wealth going to an ex-spouse, they can leave money in a discretionary trust rather than directly to you. Trustees (not you) control the assets, making it harder to argue the money should form part of your divorce settlement.

However, trusts aren’t bulletproof. Courts can consider trust assets as a “resource available” to you if trustees are likely to release funds for your benefit.

What happens in practice

In typical cases:

Small inheritance, modest matrimonial pot: The inheritance is often needed to meet needs and may be shared.

Large inheritance, large matrimonial pot: The inheritance may be ring-fenced if matrimonial assets can meet both parties’ needs.

Inheritance used for family benefit: More likely to be treated as matrimonial, at least in part.

Inheritance kept strictly separate: Better chance of protection, but still not guaranteed if needs require it.

Short marriage: Non-matrimonial assets more likely to stay separate.

Long marriage: Less distinction between matrimonial and non-matrimonial property.

Disclosure requirements

You must disclose inheritance in your Form E financial disclosure. This includes:

• Inheritance already received
• Inheritance currently in probate (being processed)

You don’t have to disclose inheritance you might receive in future from relatives who are still alive – that’s speculation, not a current asset.

Hiding inheritance you’ve already received is a serious mistake. If discovered, the court can reopen your settlement, impose costs against you, and view your credibility negatively.

Practical advice

1. Get legal advice early – understanding how your inheritance is likely to be treated helps you plan

2. Keep records – documentation of when you received money and how it’s been held is valuable

3. Don’t assume – inheritance being “yours” doesn’t mean it’s automatically protected

4. Consider the whole picture – sometimes it’s better to share some inheritance rather than fight expensive litigation

5. Be honest – disclosure is required; dishonesty creates worse outcomes

6. Think about needs – courts prioritise ensuring both parties can live adequately over protecting non-matrimonial wealth