Over the course of a marriage, you or your partner might inherit property. Although the law generally treats inherited items as belonging only to the named recipient, the way you treat the property determines whether it must be shared with your spouse if your marriage dissolves.
Property equalization is often a contentious topic when couples divorce. A knowledgeable divorce lawyer could help you understand how to protect your inheritance and how to preserve as much of it as possible if your spouse has a valid claim to some part of it. Our team at The Riley Family & Divorce Law Firm could help advise you regarding other portions of Toronto divorce and inheritance law as well, such as if your spouse is denying you a share of their inherited property and you believe you are entitled to a portion.
The Ontario Family Law Act s. 5(1) requires you and your spouse to equalize the financial benefit you derived from the marital partnership when you divorce. Each spouse must calculate the change in their net worth between the marriage date and the separation date, and the spouse who realized more gain must split the difference with the other spouse.
Inheritances are treated as separate property and are not included in this calculation. However, depending on the way the recipient handled the property they received through inheritance, their spouse may have a claim on it. When you receive an inheritance and join it with marital assets, your spouse has a claim. Similarly, if you use the inheritance for something that generates income, like a rental property or stocks, your spouse has a claim on the income.
There is often a temptation to use inherited property to pay down the mortgage on the family home or perhaps purchase one. Doing so erases the inheritance exclusion and works to the other spouse’s favor, who has a claim to half the value of the matrimonial home. Toronto Lawyer Paul Riley could offer alternative solutions that preserve your right to the full value of your inheritance during a divorce.
The person who left property to you meant it for you. If they also meant it for your spouse, they could have bequeathed it to both of you. Preserving the property for your use requires you to handle it in a way that confirms it is yours alone.
When you receive cash or stocks, keep them in separate accounts and do not allow your spouse access. When you receive a home, cottage, or vacation property, do not use it as a matrimonial home. A couple could have more than one matrimonial home, and even taking occasional family vacations at the inherited property could inadvertently convey a claim on it to your spouse.
Any increase or decrease in the value of inherited property that you have maintained as separate is not subject to equalization. However, you must include any income the inheritance generated in your separation date assets, and it is subject to equalization unless the donor specified in writing that the income should not be. A Toronto divorce law practitioner like Paul Riley could help you calculate the assets you must include in the equalization and ensure you exclude everything you maintained separately, as appropriate, for your inheritance.
A couple could avoid complications relating to inheritances by creating a domestic contract before or during the marriage. The contract could spell out the couple’s intentions regarding how they will handle inheritances.
Domestic contracts allow a couple to replace the act’s property equalization regime with one of their own, as mentioned in Ontario Family Law Acts. 5(1),. Courts generally defer to a couple’s agreement regarding their property unless:
The enforceability of these contracts is enhanced when both spouses have advice from independent legal or financial professionals before signing the agreement.
A domestic agreement could eliminate uncertainty regarding how inherited property should be handled when a marriage dissolves, reducing the likelihood of fruitful negotiations and speeding up the divorce process. A Toronto matrimonial lawyer like Paul Riley could help you draft and negotiate a domestic contract or, if necessary, challenge one for an inheritance.
The laws surrounding inheritance and property equalization seem clear, but applying them is complex and fact-dependent. The advice of a legal professional with a sophisticated understanding of these matters is essential.
Work with a Toronto divorce and inheritance lawyer when you have an inheritance to protect or believe you have a claim on your spouse’s inheritance. Call our firm at any time to discuss your situation.
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