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Generally speaking, inheritance is a treasured thing by the one receiving it. We can even say that this is a part or the entire legacy of the person from whom the inheritance came from.
Whether or not you value the inheritance that you received, we can agree that the money or property that you inherited is an asset/property worth protecting from the effects of Divorce.
Protecting Your Inheritance from the Effects of Divorce
Inheritance received prior or during marriage are generally excluded from the net family assets/property. The inheritance is exclusively yours as long as you can prove that the same was “inherited”, save from some exception depending on how you used the inherited property.
Although the inheritance is exclusively yours, usually these properties will still be included in the calculation of the family assets/property. (The inherited property, although included in the calculation, the value of which will be excluded/deducted to determine the net family assets/property)
The difference between inheritance received prior to the marriage from inheritance received during the marriage is on the determination of the value that will be excluded or deducted from the family assets/property to determine the net family assets that will be subject for distribution between the spouses.
Either the inheritance was received prior to or during the marriage, it is advised you protect your inheritance by:
- Keeping the documents proving that you inherited the thing/property; The documents proving that you inherited the property will show the amount of money or property that you inherited. The document can be a valid “will”.
- If the inheritance is money, apart from the above-stated proof of inheritance, you should keep that money under a separate account and do not commingle with your other accounts which funds are sourced from other than the inheritance.
- If the inherited property (not money) was received prior to the marriage, have the value of the inherited property, as of the date of marriage, determined and documented.
- If the inherited property (not money) was received during the marriage, have the value of the property, as of the date of separation, determined and documented.
- If the person from whom the inheritance came from intends for you to exclusively own any income derived from the inherited property, this intent must be reduced into writing and signed by the person giving you the inheritance.
- Have your lawyer draft a pre-nuptial or post-nuptial agreement where your exclusive properties are already identified and determined.
- Do not use your inheritance to purchase or repair/improve a matrimonial home or a home intended to be the matrimonial home. If you used your inherited property to purchase or repair/improve a matrimonial home (or a home intended to be a matrimonial home), you will lose your right to exclude or deduct the amount that can be sourced as your inheritance from the family assets/property.
- Using your inheritance to pay off joint debts.
Determining the value of your Inheritance that may be excluded or deducted from the family assets/property
Although generally speaking inheritance is the exclusive property of the spouse receiving the same, when it comes to the calculation of the family assets/property, these inherited properties will still be included in the calculation although subject to be excluded and/or (value) deducted to determine the net family assets/property.
Assuming that the inherited property was not used in the purchase or repair/improvement of the matrimonial home, what will be the value of the inherited property that may be excluded or deducted from the family assets/property?
The answer is quite simple.
For inheritance received prior to the marriage, the valuation will be the value as of the date of the marriage.
For inheritance received during the marriage, the valuation will be the value as of the date of separation.
To learn more about the options you can have, it’s best to hire a lawyer specializing in inheritance and divorce.
Protecting Your Inheritance using Pre-Nuptial or Post-Nuptial Agreement
In Ontario, married spouses can already pre-determine their property rights in the event of separation or divorce by executing domestic contracts such as pre-nuptial agreements or post-nuptial agreements. Pre-nuptial or post-nuptial agreement/contracts can help protect assets from claims by their spouse if they separate or file for divorce.
| Common Issues Arising in Family Law Claims Which Can Create Entitlement to Part of the Inheritance | |
|---|---|
| Increase in Value of Inheritance |
If the inherited property was received prior to the marriage, the increase in the value at the time of separation in relation to the value as of the date of marriage will form part of the net family assets. For example: You inherited a car prior to your marriage, and the value of that car as of the date of your marriage is CA$10,000. On the date of your separation, the car is now valued at CA$15,000. The CA$5,000 or the increase in the value will be included in the net family assets/property. If the inherited property was received during the marriage, generally speaking, the increase in value will not be included in the family assets/property. For example: You inherited a car valued at CA$10,000 during your marriage. At the time of your separation, the value of the car increased to CA$15,000. The amount excluded from the net family assets/property is CA$15,000. Common to both inherited property received before or during the marriage: If you use the inherited property to purchase/acquire or repair/improve a matrimonial home, you will lose the right to exclude or deduct the value of your inherited property from the net family assets/property. |
| Sold or Invested Inheritance |
As discussed in the previous topics, generally speaking, inherited property is the exclusive property of the receiving spouse. However, if the inherited property was sold or invested, then the income derived therefrom will be included in the net family assets/property. In order for you to exclusively enjoy or have the exclusive right over the income derived from your inherited property, the person who gave you the inheritance must explicitly state in a written and signed document that income from the inherited property will form part and is included as your inheritance from that person. |
| Protecting Yourself | Banks only keep records for seven years, and anything beyond that can be difficult to obtain during a divorce. Keep track of your investments, mortgages, bank fees, taxes, and other related documents to trace the inheritance back to its origin. It’s crucial for your divorce case and protecting your assets. It’s also possible to enter into a prenuptial or cohabitation agreement that clearly states the origin of the inheritance to protect an increase in value against an equal division during a separation or divorce. |
Did you know?
“Getting into a prenuptial agreement or marriage contract is one of the best ways to keep your assets and money safe before a divorce.”
Protecting Your Inheritance with Lisa Gelman
Usually, the options you have for protecting and dividing your inheritances depend on particular circumstances. If you have questions about dividing an inheritance received by your spouse or protecting your inheritance, hire a lawyer. Gelman & Associates is a firm that handles both inheritance and divorce in Canada.
FAQs About Your Inheritance in Relation to Divorce
FAQ:HOW TO PROTECT YOUR INHERITANCE FROM DIVORCE
Yes you can. What you can do now is for you and your wife to designate the second home as the matrimonial home, and register it as matrimonial home before the land registry office. After doing so, the first home that you purchased using your inherited money will no longer be considered a matrimonial home. In this case, you can now exclude the amount you paid to purchase the first home from the net family assets.
No. You cannot exclude an inherited property that was already used and no longer existing at the time of separation.
It depends on when you received the inherited property.
If you received the inherited property prior to the marriage, the value of that property will be based on its value as of the time of the marriage. Thus, if the car that you inherited was valued as $10,000 as of the time of marriage, and at the time of separation the value of that car depreciated to $5,000, the value that will be excluded from the net family assets/property is the $10,000.
If you received the inherited property during the marriage, the value of that inherited property will be based on its value at the time of separation. Thus, if the car that you inherited during the marriage was valued at $10,000 and at the time of separation it depreciated to the value of $5,000, the value that will be excluded from the net family assets/property is the depreciated value of $5,000.
There are many ways for you to keep your inheritance separate from your spouse, such as saving all proof, like photos and records, that show that the estate was intended for you alone.
When you’re undergoing a divorce, both spouses will be dividing community property equally between themselves. In contrast, as long as they can provide proof of ownership, each spouse gets to keep their separate property.
Fortunately, inheritance doesn’t count in a divorce settlement. When you go through the division of properties, your estates are excluded during the process as long as you can show proof of ownership.
