When a couple decides to marry, it is important for them to consider how their assets may be divided in the event of separation or divorce. In Ontario, assets like inheritances are treated uniquely under the Family Law Act (“FLA”) and are often protected during the equalization of net family property. However, marriage contracts can offer an extra layer of security for your property in the event of a divorce. Family law lawyer Paul Slan discusses more information about the significance of marriage agreements and how inheritances ca be addressed in them.
The Importance of Prenuptial and Marriage Agreements
In Canada, a voluntary agreement between two parties who are planning to marry or are already married is called a marriage contract, or marriage agreement. Similar to prenuptial agreements in the United States, a marriage contract can outline how certain matters will be dealt with if parties separate, divorce, or die.
A marriage contract can be extremely useful for partners who wish to avoid disagreements in the future regarding property claims or spousal support claims. A marriage contract may even outline future parenting and child support arrangements, although such arrangements are not enforceable in court. A marriage contract can also reiterate that assets legally excluded from net family property, like gifts or inheritances, are to remain protected. As a result, marriage contracts can help cut down on time and money spent in court if parties cannot agree on the terms of their separation or divorce.
Is My Spouse or Common-Law Partner Entitled to Inheritance Money From Before the Relationship Started?
Your spouse or partner is not entitled to inheritance money you received before the relationship started. Any assets you acquired before your marriage are not subject to division. Besides the matrimonial home, any property or resources you held before the marriage took place are treated as deductions when calculating net family property and equalization payments.
How to Address Inheritance Issues In a Prenup or Marriage Contract
If you decide to create a marriage contract before or after getting married, it is a good idea to list the inheritances you have received or are going to receive in the agreement. Although inheritance collected before marriage will not be included in your net family property, by providing for it in a marriage contract you can reaffirm it was received before marriage. As a result, the date of its receipt cannot come into question and the inheritance will be treated as a credit during equalization.
Under the FLA, assets gained through gift or inheritance during a marriage qualify as exclusions from net family property. This means that if you still have an inheritance you received during your marriage at your date of separation, it will be protected from division. However, you may still specify in a marriage contract that you have inherited funds or that you will inherit funds at a particular date in the future to verify the source of the assets. Although inherited funds are protected under Ontario law, addressing them in a marriage contract offers an extra form of protection.
How Are Increases in Value of Inheritances Treated During a Separation or Divorce?
If your inheritance is an asset that can appreciate in value (such as real estate, for example), increases in its worth may be subject to division upon the dissolution of your marriage. The way increases in value are treated during a separation or divorce will depend on whether an inheritance was received before or after the date of marriage.
If an inheritance was received before the date of marriage, then any increases in its value will be included in your net family property. This means that any increase in value will be subject to division when you and your partner separate. If an inheritance was received after the date of marriage, increases in value will be excluded from your net family property assuming the asset still exists at the date of separation. This is because inheritances received during marriage are protected as an exclusion under the FLA.
Because of this significant difference, it is important to know when an inheritance was received. By articulating its date of receipt in a marriage contract, an inheritance may be better protected from division. Schedule a consultation with our family law lawyers today for assistance in creating a marriage contract that protects your assets.
How Are Assets and Debts Valuated for Equalization Purposes When it Comes to Inheritances?
Inheritances are valuated in the same way as ordinary assets and debts during equalization. If your inheritance was monetary, the amount of money you received will constitute its value, provided that you still possess the money at the date of separation. Such value can be determined by examining records of money in a bank account. If you inherit a property or other non-monetary asset (like an art collection, for example), it must be professionally valued or assessed. This process applies to all assets considered during net family property calculations, even if the assets are considered exclusions.
Once the value of an inheritance is determined, it is also possible to calculate any value increases that have occurred during the marriage. This may be relevant depending on whether the inheritance was received before or after the date of marriage.
How to Protect Your Children’s Inheritance in a Divorce or Separation
To protect your children’s inheritance during a divorce, you must protect your own assets. When children have yet to inherit funds, the inheritance is still technically considered the parent’s property. As a result, no unique protection for children’s future inheritance exists in the same way as it does for gifts and inheritances acquired by an individual during marriage. For this reason, ensuring your assets are not subject to division is the most efficient way to maintain a child’s inheritance.
If the funds that are intended for your child’s inheritance were acquired before marriage, they should not be included in your net family property. A marriage contract which stipulates that certain funds you wish to pass on to children cannot be divided during divorce may also offer protection. This may be especially helpful in cases where funds intended for inheritance are acquired during the marriage. With professional legal advice, a marriage contract can be drafted that provides comprehensive protection for your assets.
Contact Us at Gelman & Associates Today For Advice On Marriage Contracts and Inheritances
Creating a marriage contract can offer valuable peace of mind for you and your partner. When it comes to assets like inheritances during a divorce, a variety of protections exist. Although Ontario law ensures that inheritance is excluded from net family property under most conditions, marriage contracts may also provide for inherited funds or property. For advice about maintaining your inheritance and creating an effective marriage contract, schedule a consultation with our family law lawyers today.
Disclaimer: For specific legal advice on your family law matter, please consult with a family law lawyer. The content in this article is not intended to act as legal advice and is instead intended to act as a general overview of a legal topic.
