Understanding the Exclusion of Gifts and Inheritances
In Ontario, the value of gifts or inheritances received during your marriage is excluded from the division of property upon separation or divorce. However, it’s essential to handle these assets correctly to benefit from this exclusion.
Keeping Gift & Inheritance Money Separate
To ensure that a gift or inheritance remains excluded, you must demonstrate that it still exists at the date of separation. Here are critical steps to take:
Separate Accounts: Keep gifted or inherited cash separate by depositing it into a distinct account.
Investments: Use inherited money to buy stocks or long-term investments, ensuring they remain separate from other assets.
Avoid Commingling: Do not mix these funds with your regular accounts. If mixed, it becomes challenging to prove the portion attributable to the inheritance or gift.
Failing to keep these assets separate may lead to complicated accounting issues and potential loss of the exclusion.
Avoid Joint Accounts and Matrimonial Home Investments
When inheritance or gift money is placed into a joint account or used to purchase jointly owned property, the law presumes you’ve gifted half of that money to your spouse, as per section 14 of the Family Law Act. Consequently, only half can be excluded.
Most importantly, avoid using gifted or inherited money for the matrimonial home. The Family Law Act mandates that the value of the matrimonial home is shared between spouses unless a domestic contract states otherwise. Thus, using inherited funds for mortgage payments, down payments, home equity lines of credit, or renovations means you cannot exclude those funds.
Using Gifts/Inheritances to Purchase Property
You can use cash from a gift or inheritance to buy any property (except a matrimonial home) and still maintain your exclusion rights. However, if purchases are made with a mix of inherited/gifted funds and other family funds, tracing becomes necessary to determine the portion excluded.
Example:
If you inherit $20,000 and use it to purchase a $25,000 piece of artwork, which appreciates to $35,000 by the separation date, you can exclude the portion traceable to the original $20,000. Generally, you could exclude 4/5 of the current value ($28,000), as 4/5 of the artwork's purchase price was from the inheritance.
Value at the Date of Separation
The exclusion applies to the value of the gift or inheritance at the date of separation. For example, if you inherited art that appreciated in value by the separation date, it’s the separation date value that’s excluded. The same principle applies if the item has depreciated.
Handling Pre-Marital Gifts and Inheritance Money
Pre-marital gifts and inheritances are also subjects of special consideration under Ontario’s property division laws. Proper documentation and handling are critical to ensure these assets remain excluded.
Conclusion
Navigating the complexities of divorce and property division can be stressful. At Divorce is Simple - Online Divorce Mediation Canada, we are here to offer clear, step-by-step guidance and personalized support. We aim to alleviate your stress by providing professional, empathetic advice. For more information, contact us today and let us help you through this challenging time.
Have questions about inheritance and divorce? Contact Divorce is Simple today for expert guidance. For more information or to book a consultation, visit our website today.
Disclaimer: This blog post is intended for informational purposes only and does not constitute legal advice. For specific legal guidance, please consult a qualified family lawyer. This is not intended to be used as advice.
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