Inheritance, Gifts and Divorce – what you need to know

If you have ever received an inheritance or gift you will be well aware that these items can very often hold great sentimental value. However, not only can they hold a place in our hearts, these items can also hold significant economic value.

Therefore, you would be quite right to be concerned as to what would happen to these items in the event that you were to separate from your spouse or civil partner. So, how do we treat inherited/gifted property on divorce or dissolution?

Matrimonial (or partnership) property

The law makes provision for the redistribution of assets (and debts) at the end of a relationship where a couple have either been married or in a civil partnership.

In doing so, the law would first wish to determine what the matrimonial (or partnership) property is in order that they can then undertake such a redistribution. Matrimonial (or partnership) property is generally defined as the property acquired by the spouses (or civil partners) either:

• Before the marriage (or civil partnership) for use by them as a family home,
• As furniture or plenishings for such a home, or
• During the period of marriage (or civil partnership) but before the relevant date.

Inheritance or gift

This all seems very straightforward. However, with every rule there is, of course, an exception and in this case it is a very important exception if you are concerned about what may happen to an inherited antique clock or a gifted painting of your favourite sea view. The exception is that matrimonial (or partnership) property does not include items which have been acquired by either party by inheritance or gift from a third party.

What this means is that if you did indeed inherit an antique clock or were gifted a painting, then they would not be classed as matrimonial (or partnership) property. Therefore, such items would not be included in the redistribution of matrimonial (or partnership) property and are yours to do with as you wish.

Changed “form”

So far, so good. However, what happens if you didn’t like the antique clock you inherited or the painting wasn’t really to your taste and you sold them? If you sold the antique clock or the painting then the sale proceeds automatically become matrimonial property because they have changed “form”.

For example, if you were to sell the antique clock and use it to buy a new car then the car is then classed as matrimonial (or partnership) property because it is no longer in its original “form” as a clock. This would therefore mean that the item falls within the definition of matrimonial (or partnership) property and can be distributed according to the provisions set out in the law.

Special circumstances

Scots Law sets out that matrimonial (or partnership) property should be divided fairly, and this most commonly means equally (i.e. a 50:50 split). Again, as with every rule, there are exceptions to the rule that fair sharing means equal sharing. The exception being that where there are special circumstances in a case, they may justify a departure from equal sharing.

One such circumstance is that the “source of funds” used to acquire the item of matrimonial property comes from an inheritance or gift to one spouse (or civil partner). This means that the source of funds used to acquire the piece of matrimonial (or partnership) property should be taken into account and equal sharing may be departed from.

Grey area

This exception therefore creates a grey area regarding such items. You should, however, be alive to the fact that although “source of funds” arguments may justify departure from equal sharing, they cannot require it.

In each case what matters is fair sharing, and therefore you cannot ever know with complete certainty how much credit you would receive back for such an argument from the court (if you were to argue this matter before a sheriff or judge).

Where the source of funds is a relevant circumstance, there is no defined rule about how that should be taken into account by the court. As previous cases have shown, much will depend on the broader facts and circumstances of the case.

Understand your situation

As you will see, matrimonial (or partnership) property will need to be looked at carefully if you find yourself in a situation where you are separating from your spouse (or civil partner) and you have funded items from inheritance or gifts from third parties. We would therefore encourage you to seek legal advice in order to better understand your situation as a matter of priority.