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Protecting Inheritance from Separation or Divorce In Ontario

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Published by:

Abigail Moses

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Reviewed by:

Alistair Vigier

Last Modified: 2023-08-11

Are you looking at protecting an inheritance from separation in Ontario? When a married couple separates or gets a divorce, property division/equalization occurs by calculating the “Net Family Property” (“NFP”) pursuant to Ontario’s Family Law Act.

Net family property is the value of all of the couple’s property, except that which is explicitly excluded, that a spouse owns on the separation date after deducting debts and the value of the property the spouse owned on the date of marriage other than debts related directly to the purchase or improvement of a matrimonial home (FLA section 4(1)).

Property other than a matrimonial home that was acquired by gift or inheritance during the marriage is excluded from NFP (section 4(2)).

If you need to speak to an estate lawyer in Ontario, you can call ROBINS APPLEBY, a law firm in Toronto, at 416.360.3379.

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Protecting Inheritance from Separation

If this gift or inheritance can be traced into property other than a matrimonial home, it is also excluded (section 4(2)). For example, if you can prove that you used your inheritance to buy a new watch for yourself, the watch is excluded from the NFP.

Thus, a spouse receiving an inheritance should be careful to keep it separate from other property or ensure that it is traceable into the new property. There should be extra caution surrounding the matrimonial home, as any property invested in a matrimonial home will no longer be excluded from the NFP.

Understanding the Basics of Inheritance Protection

If the inheritance is to be included in the matrimonial home, the spouse could consider a marriage contract or a mortgage on the title in their favour.

In Ward v Ward, 2012 ONCA 462, the wife received a $200,000 gift from her father shortly before separation and the parties’ used $180,000 to pay down the line of credit on the matrimonial home after the husband pressured the wife to do so.

The wife testified that she expected to be repaid by the husband, without any specific basis for this belief.

Line of Credit on the Matrimonial Home

The trial judge utilized section 5(6)(h) of the Family Law Act, which provides the Court with discretion to order an unequal division of NFP and concluded that it would be unconscionable to allow the husband to acquire an additional $90,000 in the matrimonial home without an adjustment.

The Court of Appeal agreed that while exclusion was lost as the inheritance was spent towards the matrimonial home, it should use its discretion to unequally divide the assets. However, this remedy is discretionary and spouses structuring their finances should not rely on the same.

The value that is excluded from the NFP is the value of the gift or inheritance at the date of separation. This means that if you inherited an antique that is worth more on the date of separation than the date you inherited it, the value on the date of separation will be excluded.

The Intersection of Inheritance and Matrimonial Laws

If you allege that an asset should be excluded as an inheritance or gift, you bear the onus of proving this exclusion (section 4(3)). To note, however, the Family Law Act states that income from the gifted or inherited property is only excluded if the person who gave it to you expressly stated that the income is to be excluded from NFP (section 4(2)).

This would include, for example, stock dividends, or rental income. Additionally, placing the inheritance in a joint account will lead to a presumption that the spouses intended to share the inheritance.

Protecting Inheritance from Separation In Ontario

Pre-marriage assets are deducted from NFP. Therefore, the value of a gift or inheritance you received before marriage will also be deducted from NFP. However, any value that it gained during the marriage will be included in the NFP.

For example, suppose Spouse A is given shares in a business that are worth $200,000 before marriage. The value of these shares at marriage is $250,000. The spouses separate years later, at which time the shares are worth $550,000.

Resultingly, the spouses share 50% of the $300,000 increase. This was such that Spouse A is entitled to $400,000. Spouse B is entitled to $150.000.

Key Points and Take-Aways

If possible, keep an inheritance or gift separate from joint assets.

Pay close attention to the money you invest into a matrimonial home. Especially if this money was inherited or gifted to you.

If you are receiving an inheritance or gift, it is a good idea to think about asking the person in advance. When possible, think about whether they intend for the income to be split between yourself and your spouse.

If you are looking at protecting an inheritance from separation in Ontario, you can also fill out the contact form on this page.

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