Pursuant to Ontario’s Family Law Act, when two people enter into a marriage, each spouse becomes automatically entitled to an equal share of the increase in value of that marriage, subject to certain exceptions. The right to equalization is triggered when the parties separate or when one spouse dies. Each partner then becomes entitled to one half of the couples’ “net family property”, i.e. the value of the net property accumulated during the marriage and the value of the matrimonial home, notwithstanding that it may have been acquired prior to the marriage. An important question for many individuals contemplating separation or divorce is how inheritance is treated during the equalization process.

The Ontario Family Law Act provides that any assets that a spouse inherits or receives as a gift from a third party during the marriage are excluded from the calculation of the individual’s net family property, provided these assets have been kept separate and exist on the date of separation. An exception to this rule is the matrimonial home, which cannot be excluded from the calculation. In addition, any income or interest on property gifted or inherited from third persons after the marriage will be excluded, but only if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property. In contrast, the value of gifts or inheritances received by a spouse prior to marriage are deducted from the calculation of the individual’s net family property on the family law valuation date.

If the property received by a spouse as a gift or inheritance during the marriage has ceased to exist by the family law valuation date, no exclusion can be claimed unless the property can be traced into other property which exists on the valuation date. No exclusion will be allowed if the gift or inheritance has been co-mingled with other assets or been used to purchase a matrimonial home.

To find out more about your property division rights during separation or divorce, call Gelman & Associates at (416) 736-0200 or 1-844-742-0200 or contact us online for a confidential initial consultation.