How are Inheritances Treated When a Couple Separates in Ontario?

When a couple separates, one of the most important and potentially complicated aspects of the process is determining how their assets will be divided. For many, this includes not just the family home or savings accounts, but also inheritances. In Ontario, how an inheritance is treated in the event of separation or divorce depends on several factors. Understanding these nuances can help ensure that your rights and interests are protected during what is often a challenging time.

1. What is an Inheritance?

An inheritance refers to any assets, money, property, or other valuables that a person receives after the death of a loved one, typically a parent, grandparent, or other relative. In Ontario, inheritances are often viewed as “excluded property” under family law, but their treatment during separation can vary based on how the inheritance is managed during the marriage or common-law relationship.

2. The Ontario Family Law Act and Property Division

Under the Family Law Act in Ontario, when a married couple separates, the net family property (NFP) must be calculated for each spouse. NFP refers to the total value of the assets acquired during the marriage, minus any debts incurred.

In general, the family home and assets accumulated during the marriage are considered part of the NFP and subject to division. However, inherited property is treated differently. According to the Family Law Act, inheritances received during the marriage are considered excluded property and are not automatically included in the NFP. This means they are generally not divided between spouses.

3. When is an Inheritance Excluded Property?

An inheritance is considered excluded property if:

• The inheritance was received by one spouse during the marriage or during the relationship (if common-law).
• The inheritance is kept separate from the couple’s other assets and is not used for joint purposes, like paying for the family home or shared expenses.

If the inheritance is kept in a separate account or invested in the name of the inheriting spouse, it will likely remain excluded from the NFP and not subject to division upon separation. However, if the inheritance is commingled with joint assets (for example, used to renovate the family home or put into a joint bank account), it may lose its excluded status.

4. When Can an Inheritance Be Included in Property Division?

While inheritances are generally excluded, the situation becomes more complex if the inherited assets are used during the marriage or commingled with joint assets. If one spouse spends the inheritance on joint family expenses or invests it into a shared property (like the family home), it may become part of the NFP and subject to division. It is important to note that the inheritance must still exist in some form at the time of separation.

For instance, if an inheritance was used to pay down the mortgage on the family home, this portion of the inheritance may be considered a contribution to the property and could be included in the property division.

In addition, if the inheritance was used to enhance or increase the value of property that is jointly owned, the value added by the inheritance could be taken into account in the property division.

5. Common Law Couples and Inheritances

For common-law couples in Ontario, the rules around inheritances are somewhat different. While married couples have a clear framework for property division under the Family Law Act, common-law couples do not automatically share in the division of property unless there is an agreement in place.

For common-law couples, an inheritance may be considered excluded property if it is not commingled with shared assets. However, if the common-law couple separates, the inherited property will only be divided if there is a legal claim or if the couple has a cohabitation agreement that addresses how inheritance and property will be divided.

7. How to Protect an Inheritance During a Separation

To protect an inheritance and ensure it remains excluded from property division, the following steps can be helpful:

• Keep the inheritance separate: Deposit the inheritance into a personal account that only you have access to and avoid using it for joint purposes.
• Document everything: Keep detailed records and a tracing of how the inheritance was received and used, and ensure that it is not commingled with marital assets. Without the documentation showing the tracing of the inheritance, you may not be able to exclude the inheritance.
• Consider a marriage contract or cohabitation agreement: If you are concerned about how your inheritance may be treated in the future, consider drafting a legal agreement that specifically addresses the treatment of inheritances and other assets in the event of separation or divorce.

8. Consult with a Family Lawyer

Given the complexity of property division in a separation, it is essential to consult with a family lawyer who can provide legal advice tailored to your situation. A lawyer can help clarify whether your inheritance will be considered part of the net family property and guide you on how to protect your assets moving forward.

Conclusion

In Ontario, inheritances are generally considered excluded property and not automatically subject to division during a separation or divorce. However, the situation can become complicated if the inheritance is used or commingled with joint assets. Understanding the rules and taking steps to protect your inheritance can help ensure that your assets remain protected. Consulting with a family lawyer is always recommended when navigating these complex issues.