When you're in a relationship, understanding how different types of property are classified can be crucial, especially when it comes to something as personal as an inheritance.

If you’re anticipating receiving an inheritance and are wondering whether it will be considered relationship property, here’s a clear and practical guide to help you understand how inheritances are treated under the law and what steps you can take to protect your interests.

What is relationship property?

Relationship property typically includes assets acquired during the course of a relationship. This can encompass a wide range of items, such as your home, shared savings, and even debts. Generally, relationship property is divided equally if the relationship ends, unless you have a contracting out agreement (commonly known as a prenup).

Is an inheritance considered relationship property?

An inheritance is, in most situations, classified as separate property, meaning it is typically yours alone and not subject to division if your relationship ends. However, the Property (Relationships) Act 1976 has specific rules that can change this classification if the inheritance is used in certain ways.

When can an inheritance become relationship property?

1. Use of inheritance: If you use inheritance money for the benefit of your relationship, such as applying it towards repaying part or all of the mortgage on a family home, the inheritance money can become part of the relationship property pool. Since the family home is relationship property, this means that if the relationship ends, your spouse or partner receives the benefit of half of the inheritance.
2. Commingling funds: Depositing inheritance money into a joint bank account or mixing it with other relationship property can also lead to the inheritance being treated as relationship property. Keeping inheritance money separate from joint finances is crucial to maintaining its status as separate property.

The same principle applies to gifts of money received from family members. If you use such gifts for relationship purposes, they can become relationship property. For example, using a monetary gift for shared expenses or investments could entitle your partner to a portion of that gift if the relationship ends.

How can you protect your inheritance?

1. Keep it separate: To ensure that your inheritance remains separate property, avoid using it for relationship purposes. Consider investing inheritance money in your own name or keeping it in a separate account that is not used for joint expenses.
2. Contracting out agreement: Entering into a contracting out agreement can help confirm the status of your inheritance. A contracting out agreement allows you and your partner to agree on how property, including inherited funds, will be treated in the event of a separation. You can stipulate that inherited money remains separate property, regardless of the use to which the money is put. On separation, you would be entitled to the value of the inheritance.

Conclusion

As with any relationship property matters, it is important to be aware of your options and seek advice early on. Our Trusts and Private Clients specialists can guide you through your options and help you make the best decisions for your situation.

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