Potential inheritance can be one of the thorniest issues when a couple separate and are trying to resolve financial differences. Quite often, one half of a couple will think it is fair for the other’s future inheritance to be put in the pot to be shared. In fact the Court only takes into account inheritances that are “reasonably foreseeable” and that is generally taken to mean where they are certain in terms of the amount and timescale. To decide a financial settlement on divorce on the basis that somebody might inherit would be risky if in fact the money was used up in nursing home fees or left to charity because of a family feud.
If an inheritance is received during a marriage, perhaps towards the end or even after separation, then it is generally argued that it should be ring fenced and belong to the person who has benefited, so long as the parties needs can be met from the other resources.
Mr and Mrs Critchell divorced after nine years of marriage when in their 40s. Mrs Critchell stayed in the house with their two children and Mr Critchell bought himself a new home with £85,000 that he borrowed from his father with a £63,000 mortgage. Halfway through the Court process they settled their case after negotiations. The family home was transferred to Mrs Critchell on the basis that Mr Critchell would have 45% of the net equity, protected by a charge, not payable until the younger child reached 18 or finished education, whichever was the later. The intention of the Order was to protect the family home whilst the children were dependent, but make sure that the husband received his share when it was no longer needed for that purpose.
Within a month of the Order being approved by the Court, Mr Critchell’s father died. He left his son £180,000 but also wrote off the debt of £85,000 borrowed for his new property. Mrs Critchell appealed to the Court to review the settlement that had been reached. The Judge allowed the appeal and cancelled Mr Critchell’s 45% equity repayment when the children were grown up.
Mr Critchell went to the Court of Appeal but was dismissed. He argued that the point of the agreement had been to meet Mrs Critchell’s needs and they were not been changed by the fact that he now had some money. The Court of Appeal preferred Mrs Critchell’s agreement that if the money had been known about at the time there would have been a different outcome.
The Court was keen to stress that situations where a settlement will be set aside and changed are rare. Nobody foresaw the death of the Mr Critchell’s father and he received a significant lump sum that changed his capital position entirely very soon after an agreement that had met the family’s housing needs in the only way that was practical or possible. There was however, no longer any justification for the 45% charge in Mr Critchell’s favour and it was set aside.