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Divorce has the potential to be a financially risky process for both spouses, and this is especially true for high-net-worth individuals. So, what happens to family wealth at the end of your marriage?
If you received a gift before or during your marriage, more often than not it is yours to keep. However, there are some exceptions. Read on to learn more about what happens in Canada to an inheritance during a divorce and how to reduce your financial risk.
While Ontario’s family law generally promotes equal division of property during a divorce, inheritances and gifts are treated differently. These assets are usually considered separate from the family’s joint property and are typically excluded from equal division. However, if the inheritance increases in value during the marriage, the growth may be subject to division. For example, if the inheritance is used to invest in the matrimonial home, you could risk losing your claim to exclude it from the division of assets.
In Canada, there is one common exception to the separate property rule’s treatment of inheritance. If you, the heir, commingled those funds with your spouse’s, for example, by placing them into a joint savings or investment account, or if the funds purchased the couple’s home, it may be considered family property. In that case, the gift would be equally distributed between you and your spouse.
It is therefore crucial to keep these gifts apart from the marital assets, especially if the inheritance was currency. You would want to prove that the gift was separate from the marital funds at the date of separation to ensure it was not subject to division. Otherwise, the court may determine that you made a gift to your spouse as per Canada’s Family Law Act, section 14.
Some spouses choose to sign a prenuptial agreement that specifies how the inheritance will be managed during a divorce. In this case, the court would likely uphold those terms as long as the document was properly executed. The design of these contracts protects multi-generational heirlooms so that they are passed down as the grantor intended. However, prenuptial agreements can be contested based on factors such as non-disclosure and unfair terms.
It is always a good idea to speak with an experienced family lawyer when you are going through a divorce. The resolute team at The Riley Divorce & Family Law Firm understands how to apply Canada’s laws to your unique situation. Contact us today so we may explain what happens to your family wealth and inheritance after a divorce.
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