After a relationship breakdown, spouses have the right to divide their property. If the spouses are married, then the property division takes place in accordance with calculations in the Family Law Act. If the parties were not married, the property is divided on common law principles of property ownership and equitable principles of trust. Therefore, both married and unmarried couples have claims to property rights once the relationship breaks down.
In Ontario, married couples who divorce will go through an equalization process, which essentially divides the couple’s total property value in half – but in most circumstances, pursuant to section 4(2) of the Family Law Act, an inheritance can be an excluded from equalization. In order for the inheritance to be considered an exclusion under section 4(2), the inheritance must be identifiable and traceable. Real property (i.e. a cottage, boat, piece of art, etc.) is easily identifiable and automatically excluded. Similarly, funds that go into (and stay in) a savings account in the inheritor’s name are readily identifiable and traceable.
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. The law says that the increase in the value of separate property during the marriage may be subject to division, as if it were marital property. There are ways to avoid dividing an inheritance or gift, but it is critical to know how not to commingle your assets.
First, you have to be able to show that the gift or inheritance is still in existence at the date of separation. Otherwise, there will be nothing to exclude. Therefore, if the gift or inheritance comes in the form of cash, you should always keep that money separate.
Handling inheritances tends to be relatively clear-cut. If the money hasn’t been commingled with marital assets, it’s separate property. Gifts, though, can be trickier.
Gifts to either spouse from a third party are considered separate property, again if they have not been commingled with marital assets. So far, so good. However, in divorce, disagreements often arise as to whether the sum in question was to be considered a gift or if it was in fact a loan.
Gifts can also be made to you and your spouse as a couple. You and your spouse can receive a joint gift from a family member or a third party. For example, you may be required to prove that a payment from your grandmother was meant to be a separate gift to you and not a joint gift to you and your spouse.Assets and liabilities acquired before marriage are not included in the marital estate. An asset you or your spouse received during the marriage as a gift or from an inheritance is not considered to be marital property.
Gifts and inheritances received before marriage are treated the same way as pre-marriage assets. This means the value of the gift or inheritance that was still in existence at the time of marriage belongs to the recipient.
When deciding how to divide assets on divorce, the court must look at all the circumstances of the case and in particular the factors set out in the Family Law Act. These include the parties’ incomes, resources, needs, ages, the length of the marriage, their standard of living during the marriage and their contributions. Inheritances are not specifically referred to in the statute, although they come within the definition of resources
In many cases, gifts from parents will not be subject to equitable distribution in divorce. While couples’ marital assets are subject to distribution, gifts will often qualify as “separate property,” and this means that they remain the sole property of the recipient spouse.
Gifts that qualify as separate property include:
Gift received prior to the date of marriage: If you had already received your inheritance or gift (without exclusion clause) before you got married then there is nothing you can do about this.
Gift for Both: Wedding presents are a common example of gifts that are marital property, because the wedding guests intended them to be used by the married couple.
Gift by Inheritance: Money inherited by one spouse from another family member or friend may become marital property if it is commingled with other assets and is no longer an individual asset. However, if one spouse keeps it separate, it can still be considered non-marital property.
However, gifts between spouses that are given after marriage and before separation are considered marital property that must be accounted for, valued, and distributed as part of the equitable distribution of the marital estate unless there is expressed in the conveyance an intention that the gift is to be the separate property of the recipient spouse.
Divorce can bring out the worst in people, and especially if your husband is accustomed to getting his own way, he may be making financial threats about keeping inheritances or gifts meant for you. If you are about to separate, have recently separated, or are planning to get a divorce, a lawyer can help you understand your legal rights and ensure that your interests are protected. Each spouse should acquire independent legal advice. Even if you and your spouse agree on property, child custody and support, you should consult a lawyer to make sure you both know your legal rights and obligations.
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