Healthy marriages will benefit not only the couples’ physical and mental well-being but also the children’s. Growing up in a happy, loving home will protect children from social, educational, physical, and mental problems. Divorce may affect their overall well-being, with many suffering from low self-esteem, isolation, loneliness, depression, and other psychological distress.
In line with that, your inheritance is not a regular family property that can be divided equally among members after a divorce or separation. It’s considered an excluded property under the Family Law Act, meaning that there are certain factors to consider before filing a claim for property division.
Protecting Your Inheritance Before Marriage
If your parents left you with an inheritance, then chances are it was for you and not for your partner or future spouse. If you received an inheritance before getting married, make sure you document it and keep proof that you:
- Have an inheritance. Keep the documents and notes from the Estate Trustee confirming what you’ll inherit.
- Have opened a separate account, under your name, for the inheritance
- Have deposited the inheritance into that account
- Have documented the amount of the inheritance on the date of marriage. If it’s in a bank account, keep a copy of the bank statement that shows the balance.
- Have documented the value of those assets on the date of marriage. You might have difficulties finding this piece of information down the road, so do it immediately.
- If the document says you can exclude interest income earned from the inheritance, keep the interest earnings and inheritance in different accounts.
You should also remember that there are things you should avoid, including:
- Investing the money into a home that you’ll be living in with your partner. If you bought a house and lived with your spouse until the divorce, you lose your deduction. It also includes not paying down the mortgage.
- Using your inheritance to pay off joint debts.
- Depleting the inheritance until after you’re married.
Protecting Your Inheritance Received Within Marriage
To protect the inheritance you received during the marriage, you should:
- Keep the inheritance in another account under your name.
- Keep proof that you placed your inheritance into that account.
- Keep proof and other related documents that you received an inheritance.
You also have other things to consider if you want to protect your inheritance, including:
- Don’t deplete the inheritance.
- Don’t use it to buy a house you’ll live in with your partner.
- Don’t use it to pay down the mortgage or remodel the property.
- If you use the inheritance to buy assets, don’t buy depreciating assets. You can only exclude the overall value of the assets or account traceable to the inheritance after separation.
- If you use it to purchase assets, make sure you keep the documents proving you bought those assets with funds from the sole account where the inheritance is.
To learn more about the options you can have, it’s best to hire a lawyer specializing in inheritance and divorce.
Protecting Your Inheritance Through Marriage Contracts
In Ontario, couples can determine their boundaries for support rights, property rights, and other related issues by signing a marriage contract, with some exceptions. Marriage contracts can help protect assets from claims by their partner if they separate or file for a divorce. Documenting their inheritance and marriage contracts ensures assets are distributed to their chosen beneficiaries when they die.
|Common Issues Arising in Family Law Claims Which Can Create Entitlement to Part of the Inheritance|
|Increase in Value of Inheritance||Your judge will determine an equitable division of your marital assets and debts as part of the divorce. Its division can be complex if you have a high net worth. Before your judge can divide the marital assets, they’ll have to determine the value of each. Your judge will only determine the value of your marital assets on the date you filed the divorce. Usually, that will not include the date on which a) your divorce becomes final; b) you stopped living together with your spouse.|
|Sold or Invested Inheritance||One of the significant concepts of divorce law is the difference between separate property and marital property. Marital property refers to the assets jointly owned by the couple, while separate property is only owned by one of the spouses. It’s not subject to division during a divorce. Most of the assets acquired during the marriage are considered marital property. Inheritances are separate property, provided that it’s in a different account.|
|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. Lisa Gelman & Associates is a firm that handles both inheritance and divorce in Canada.
FAQs about Protecting Your Inheritance
Inheritance theft happens when a person uses their relationship with the one making a will to take money or obtain assets from the testator. It can be an advisor, new spouse, neighbor, friend, or caregiver. Testators may have intended to leave that inheritance to their children or other legal heirs that they state. Your conservators, guardians, trustees, or executors can also commit inheritance theft, but the testator’s children or family members are the most common people who commit this crime.
Inheritances can be a blessing that can make a lasting, positive impact on your life if appropriately managed. If you can, make plans to leave something for your heirs or favorite charitable organizations. To protect future generations, bear in mind that inherited wealth has a bad track record in terms of longevity. No matter how small or large the inheritance is, manage it with the utmost care and pay it forward.
Inheritances aren’t classified as income for federal tax purposes, whether you inherit a property, investments, or cash. But subsequent earnings on these assets are taxable unless it comes from a tax-free source. You’ll have to include the interest income from inherited dividends, stocks, or mutual funds in your reported income.
- Your gains on inherited property or assets are taxable, but you can also claim losses on these sales.
- Your state taxes on inheritances differ. Make sure to check the state’s guidelines on treasury or taxation for information or call an account and lawyer.