The Ex-Files: Jeremy Sutton on using an inheritance towards a home mortgage

Those who receive an inheritance need to be careful where they put it if they don't want it to become part of relationship property. Photo / 123RF

Question: My partner and I have a large family home. His family trust owns the house, and he purchased it before our relationship.

We are doing an extensive home renovation. I am working fulltime, and my partner is renovating the house with the help of his father. I have been paying off the mortgage for the last five years.

My partner is working on the kitchen, bathroom and having contractors work on other parts of the house, including building a new studio. They are also building another floor with a view of the sea.

I have recently been made redundant and am experiencing heavy stress because of our huge mortgage. I think that there is a good chance of us separating.

I recently received a sizeable inheritance. I was thinking of putting it on the mortgage. Would it be a good idea? What rights do you think I have to equal ownership over the family home?

Answer: Where a family home is owned by a trust, it is more complicated than if that property is owned by one or both of the parties to a relationship. This is because the home is trust property and not relationship property, which is usually divided 50:50 automatically.

Necessary questions

There needs to be further investigation into the trust and the arrangements regarding the family home.

Are you a beneficiary? Whose name is the mortgage in? Are there any debts owing between the trust and you and/or your partner? What are the terms of the trust deed?

In terms of the renovation, we need further financial details of the costs involved during the renovation period. Have your partner or his father been paid for the work they are doing?

It will be helpful if you have a written agreement, texts or emails that indicate agreement on the matter of payment or otherwise.

Potential claims

Depending on these circumstances, you may have a claim for the family home and/or the contributions you have made.

For example, if the mortgage is in your partner’s name, then there could be a claim for compensation in return for the contributions you made to repay his separate debt.

Or, if there is new mortgage lending in your names to pay for the renovations, then that could be a valid claim against the trust.

However, these potential claims against the trust are unlikely to result in equal ownership of the trust property, which was purchased prior to your relationship.

There may seem to be more questions than answers, but the details matter. I do consider you will need to engage an accountant to provide a forensic analysis of the transactions between your relationship and the trust.

Whether to contribute your inheritance

It would be unwise for you to contribute your inheritance to the mortgage.

Your inheritance is your separate property and will remain your separate property so long as you isolate it from other assets or debts.

If you use those funds to repay the mortgage, then that sum could lose its separate property status and become relationship property.

This is a common scenario, which highlights the importance of protecting your inheritance with a contracting out agreement.

In my experience involving trusts, getting a resolution will take time. It will require considerable documentation and thought before any decision-making occurs.

Jeremy Sutton is a senior family lawyer, specialising in divorce cases where there are significant assets, including family trusts and complex business structures.