Betty and Bill had been married for 35 years. During their marriage Bill inherited $300,000.00 from his late father. Betty and Bill put the inheritance money into a term deposit which was held in their joint names. The parties separated 5 years later.

What is the status of the inheritance funds and how should these funds be divided?

The general rules are:

  • Relationship property ought to be shared equally between the parties.
  • Separate property is just that, ie: separate. It will not form part of the relationship property pool to be divided equally in the event of separation.

A tension arises as to whether the inheritance funds held in Bill and Betty’s joint account is relationship property or separate property.

Relationship property includes all property owned “jointly”.

Separate property includes inheritance or any property acquired by succession/ survivorship.

Because the funds are held in a joint account does this make these funds relationship property OR is this money Bill’s separate property due to the fact that the funds held in the joint account is inheritance money from Bill’s late father?

Inheritance money will not automatically lose its status as separate property where it has been placed in a joint account. Whether or not the funds will lose their status depends on whether the inheritance moneys have been so intermingled with other relationship property that it is unreasonable or impractical to now regard that property as separate property.

An example of where this money would retain its separate property status is where:

  • The sums in the term deposits have remained relatively constant with neither of the parties drawing upon these funds or adding additional funds to the account. Because it remains separately identifiable it will retain its separate property status.

An example of where this money would lose its separate property status is where:

  • The money had been deposited into an all purpose bank account which was used over an extended period of time where various deposits had been made and drawn upon to pay living expenses etc. In this situation it would be impractical to separate out what portion of the balance of the account was represented by inherited funds and what portion was relationship funds, and as such the inheritance funds would have lost their status as separate property.

We are often asked to assist with classifying different items of property. If you need assistance with classifying property or any relationship property advice please do not hesitate to contact one of our friendly family law team.

Please note that Rainey Collins is not contracted to provide Legal Aid, other than in the Treaty of Waitangi area.  We therefore are unable to take on any Civil or Family Legal Aid work. If you require Legal Aid in those areas, you can search the list of Legal Aid lawyers on the Ministry of Justice website.