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Sunday, August 22, 2010

When I inherit, how do I keep that money out of the hands of my spouse?


For the purposes of this discussion, let's assume that there was nothing in your parent's Will that either requires you to share your inheritance with your spouse, nor specifically prevents that from happening. In other words, this discussion is about YOUR actions and what effects they will have on money you inherit from your parents.


If you share your inheritance with your spouse, for example by using your inheritance to pay down a mortgage on a home that you and your spouse both own, then you cannot later decide to take it back. You've already turned your inheritance into joint property and given your spouse a gift of the money. Should you and your spouse later become divorced, the accounting and legal arguments involved in sorting out who owns what part of the home will become expensive and time-consuming.


Keeping a family inheritance separate sometimes becomes very important to individuals who are in second marriages. The individual's goal is often to ensure that the money inherited from his or her parents is passed on to his or her children. They feel that this is more in line with what the parents wanted, rather than have the money passed down through a son-in-law or daughter-in-law to step-grandchildren.


It is possible to keep the money separate. The person who inherits should open a separate account in his or her name only, and put the inheritance in there. Interest earned can accumulate in the account. Nothing else should be added. This way it remains easy to trace the origin of the money and it's clear that no joint money was ever added to it.


This matters if there is a divorce, because in most jurisdictions in Canada, money that was inherited by one of the people divorcing is exempt from being divided with the spouse. As described above, if you don't make sure that it's clearly inherited money and nothing else in the account, that account could be attacked and you could lose some of it.


When you make your Will, you can specifically leave that account to your children. I have always added a few words to my clients' Wills to identify the account as being one that was inherited from a parent. An alternative, of course, is to give some or all of your family inheritance to your children while you are alive, either by a direct transfer or by buying assets in joint names with them.

55 comments:

  1. hi lynne,

    my wife and i separated five years ago. we both live in mexico however, and we have one son, but i have no contact with him or her. we were married in canada.

    my mother recently passed and left an inheritance.

    how would/might that work in terms of my place of residency being mexico, though i am a canadian citizen, work...?

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  2. I am a divorced woman who collects spousal and is going to receive an inheritance within a year and would like to know if this will affect my spousal payments in Canada*

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    Replies
    1. I am in the same situation. Did you find any information about it?

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    2. I suppose when you say you're a woman who "collects spousal", you mean you receive maintenance payment from a former spouse or partner. Receiving an inheritance won't have any automatic effect on your payments. However, it's possible that your former spouse may try to get the court to reduce the amount he pays on the basis that you need less from him. The court may or may not agree with him, but that is decided on a case by case basis.

      Lynne

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  3. My common law and i were together for 22 years, his mom helped us get a house, she had passed away and he inherited the house, he put my name on the house when it got transferred over, now we are seperate and selling house, am i entitled to any of that money

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    Replies
    1. If your name is on the house, then you're an owner just as much as he is, so yes, you're entitled to some of the money.

      Lynne

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  4. I inherited money and used it to purchase a house for my mother in law. She lived there 10 years. The money came in to my account prior to the purchase and after I sold it I put it in a separate account. My husband and I are now divorcing and he wants half the money. We both put some joint money into a few renos on the house (maybe 3% of the value of the house). Can I somehow keep all of this money? He says it's half his because it did comingle to some degree.

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    1. Hi Pippa,
      The best I can do in this forum is to tell you some basic rules that apply in situations like yours. It seems unlikely to me that he would get half of the proceeds of the house because on marriage breakdown, some assets are exempt from division between the spouses. Money that was inherited is exempt and it sounds as if you've kept it separate for the most part. That makes it a lot easier to trace present assets back to the inheritance. Because there was some commingling of money due to the renovations, he might have a claim to some small part of the proceeds, but certainly not half. This sounds like the usual posturing and blustering that everyone does during a divorce (or an estate battle).

      Lynne

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    2. Thank you so much Lynne for your opinion!
      Pippa

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  5. As a remarried man, I want to bequeath the family cottage to my children on my death in an equal 3-way trust they will use to receive title. If any of my 3 kids are married at the time that the title transfers to them, do their spouses have any claim on the inheritance?

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    Replies
    1. No, the spouses would not have any claim on the inheritance as long as it's in the trust. However, once anything is taken out of the trust by one of the kids and is shared with the spouse (such as adding the spouse once the title has been transferred) then rights could be created.

      I also suggest that you reconsider giving one cottage to three families. It's great that there's a trust which presumably contains enough money to keep up maintenance and property tax for a while, but they still have to agree on usage and eventually sale or transfer between them.

      Lynne

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    2. What would happen in the event that one of the 3 children passed away, who would get that persons share, considering it was the son/daughter AND their spouse that were maintaining the property, paying all bills, taxes, repair etc 3-ways. Would the spouse be entitled to the wife/husbands share?

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    3. Contributing to the bills etc does not create ownership. It won't entitle the spouse or child to the share that was owned by the deceased.

      However, the answer to this question is not simple. There are a lot of variables. The original post that led to this discussion was talking about a trust. The terms of the trust itself will determine what happens to the share of a deceased beneficiary and we have no way of knowing what was agreed.

      If there is no trust involved, the future of a deceased owner's share will depend on the type of ownership arrangement. If the person who died was a joint owner with the other two siblings, there is nothing to be given to the deceased person's spouse or children. That's how joint ownership works; it has a right of survivorship for the other owners. As I often say, a joint ownership is a last man standing arrangement. Having contributed to the bills and maintenance won't make a lick of difference unless the spouse and kids wanted to attempt a lawsuit based on the idea of unjust enrichment.

      If the three siblings owned the property as tenants in common, the share of the deceased sibling would be distributed according to the deceased's will and if he/she didn't leave a will then according to the laws of intestacy.

      Lynne

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  6. Thanks so much for the reply. I should state that I have spoken in detail with my 3 kids about the inheritance and the challenges of shared ownership. Since the cottage is so deeply entrenched in their being they are all prepared to make it work, and that makes me happy.

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  7. Hi Lynne,
    I received a trial settlement two years ago, in my name only. When I received the money I opened an account in my name only with that money. Since that time, I spent 1/3 of that amount on the common house that we own and common on family expenses.
    I know that what I've spent on the house and common expenses is now part of the common equity that divides in case of divorce, but I would like to know what would happen with the rest (the other 2/3 of the settlement money).
    Also, I have some pension funds from my work place. Is that subject to division in case of divorce ?
    Thank you for your time Lynne.
    Best regards,
    Dan

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    Replies
    1. Hi Dan,
      The other 2/3 should be addressed in your will. If you don't make a will, local provincial intestacy law will determine where the funds will go. Typically there is a split made between the spouse and any children of the marriage.

      If you were to divorce, the 2/3 of the funds would be exempt from being split.

      Pension funds through employers can have a wide variety of plans. I think you'd be best off reading the literature directly from your plan or calling their administrator to ask.

      Lynne

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  8. Hi, my parents sent me a gift of a few hundred thousad dollars from a different country. I opened a separate account to keep that money. This happened while I was still married. In case of a divorce, will my husband have any rights this money? This account is open on my name only, and my husband has no access to it. But he knew that I received this gift from my parents. Thank you!

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    Replies
    1. Hi Belka. Sorry, but I don't practice matrimonial law, so I can't be of any help on this one.

      Lynne

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  9. I need to know, in Ontario.... if I've been separated for 2 years and my mother recently passed and left a will. Should I be worried that I would be obligated to share my inheritance with my Ex if this is not specified in the will?

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    1. Ideally, you and your spouse should have finished your division of matrimonial property assets, with some kind of signed agreement or release.

      If that's not the case, you will have to rely on the legislation that says that funds inherited during a marriage are exempt from division on marital breakdown. While the principal goes in your favour, it usually still involves a battle before resolution.

      When people separate, unless they are leaving open the possibility of reconciliation, nothing good comes out of just letting the property and goods sit and wait.

      Lynne

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  10. Hi lyn, i inherited a house from my late husband and planning to cohabitate soon, is my new partner entitled to the said property when i die, im thinking of having my kids from late husband in my will as an option against prenuptial agreement with my new partner.im from saskatchewan

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  11. Hi Lynne...i am currently separated and my husband received inheritance which he opened a account in his name only at a different bank for the money...am i exempt from those funds?

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    Replies
    1. I don't think you're entitled to those funds, for two reasons. One is that on matrimonial property division, inherited funds are exempt. The second is that it appears from your question that he inherited this after you separated. Please keep in mind that I practice only wills and estates law, NOT family law, so you might want to get a second opinion from a divorce lawyer.

      Lynne

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  12. Hi Lynne butler, I will be receiving money from my fathers estate soon, but I'm in a common law relationship, that I've been in for a couple years, if we split, what should i do to insure he doesn't receive anything my father leaves me. Thanks so much

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    Replies
    1. First you need to make a will leaving the estate to someone else.

      Second you might consider getting a co-habitation agreement put into place.

      Third, you should find out what common law rights exist in your province. They are very, very different across the country. In some provinces, common laws have no rights at all and in others they have the same rights as married people.

      Finally, if at all possible, keep the money you inherit from your father separate from anything you hold with your partner. Don't put it into a joint account. Don't use it to buy things that you both use, such as a car.

      Lynne

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  13. what happens when the spouse is the excutor and the inheritor is a drunk and does not realize what the spouse is doing with the estate?

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    1. What do you mean, "what happens"? The question is just so open-ended, I don't know where to start. Could you narrow it down? Has something specific happened?

      Lynne

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    2. The spouse still has control of all the assets, accounts are in her name, and has told the husband she will control all the finances and he will have not say in what happens, and first purchase a lexus suv in her name as he has no licence and he is not allowed in the car as he is a drunk

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    3. UPDATE.. spouse has died, before his dads estate could be given to him, the will apparently states that if son should predecease dad funds go to his wife. but the spouse died after and without estate being given to him. Also the wifie went right to the lawyer as soon as the spouse was taken to hospital (because he had been sick not drunk zero alcohol levels) and asked if he died what happens to the money,, she was told she is legally married to him and not to worry all things should go to her. Is this true

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    4. This reply is for the July 29 comment because I have no idea what the earlier two were even asking.

      Yes, I think the wife will most likely inherit the funds. According to the facts you've stated, a father died, leaving assets to his son. The son was alive when dad died but hasn't actually received the assets. The son is still going to receive the assets, though of course it will go to his estate since he has died. What happens from there depends on the son's will. If she's getting his estate, it will include the funds he received from his dad.

      Lynne

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    5. the husband died with no will.. I am sorry if the first two did not make sense. I was asking what someone could do to help the husband not be taken advantage of by the spouse.

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    6. Now the spouse is getting everything from this poor guys estate.. she only stayed with him for the money..she has been having multiple affairs etc it is so sad he had to die, she really neglected his non booze related sickness 5 full days prior to his last hospitalization, and once taken to hospital, she did not go with him, instead went to the lawyer dealing with fathers estate to ask about him dying without a will. Questioned if she should push for a will to be signed that day etc. kinda twisted.

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    7. How can I make sure she has to prove she deserves all this money.. He died because of her...

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    8. Beneficiaries do not have to prove they deserve it. And prove it to whom, anyway? Where the assets go is nobody's choice but the person who owns them. I know this isn't the answer you wanted, but the law is about legal rights, not morality.

      Lynne

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    9. even without a will... really that is as you say not the answer I was hoping for but as you say the law is the law..

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    1. This is a pretty complicated matter to try to cover in a blog post.

      There are some variables that will come into play that aren't clear from your question. One is the province in which you live. Another is whether you two actually ever did divorce. Another is whether he ever lived common law with anyone after you two split.

      Your question focuses very much on how hard things were for you after the split, but inheritance law isn't really about that. As I said, I am not sure of your marital status, but if the two of you are actually divorced, you will not be entitled to anything under inheritance law.

      However, the fact that you believe that only some of the marital assets were dealt with is important. That property division would have priority over inheritances. You would have to make a claim under provincial family law provisions. That is something you should talk to a family law lawyer (as opposed to an inheritance lawyer) about ASAP.

      I find it extremely unlikely that you will be able to recover any medical expenses.

      As for your daughter, she is now an adult. She will have no automatic right to inherit anything from him unless she is a dependent who is unable to earn her own living. That does not seem to be the case despite her earlier health problems.

      A person making a will can do so no matter how weak they are, as all they have to be able to do is mark an x on the paper (assuming that he has the mental capacity to do so).

      I think your best bet is to ensure you get the rest of your matrimonial property. If you are actually still married to him, let me know as that would change my answer.

      Lynne

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    2. This comment has been removed by the author.

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  16. Good Morning. I am separated from my spouse for 3 years. My mother recently died and I have an inheritance that was left to me. Is my EX entitled to any of the money that is left to me? I have attempted to file separation papers and divorce papers without success. I am now working on getting a uncontested divorce. we have been separated for 3 years living in separate residences and t4 claiming separated status.

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    1. Hi Fern,
      When spouses split up their property, there are certain types of assets that are exempt from being divided. One of the exempt types is inheritance, so no, your ex would have no claim at all on your inheritance.

      Lynne

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  17. Hello I was wondering if anyone could answer my questions right of the bat. My parents are getting a divorce and my dad inherited money from his mom's passing. Does my mother get half of it if the account is in a bank account that is shared? Also do tje children get to say who they want to live with? If he spends all the money on a bike or something before the divorce is she still in tilted yo half of what the bike costs? If my mother is treating to the very from my dad because she has been unemployed for about 8 years and they have been married for 23 years, is there anyway that doesn't happen?

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    1. Hi Brianne,
      Most of your questions relate to family law, which I don't practice. However, I can answer your question about the inherited account, since my area of law is all about inheritance.

      If your dad had somehow kept the inherited money separate, it would not be divided on divorce. However, the fact that he put it into a joint account makes it more vulnerable. It's not guaranteed that it will be divided, but there is a very good chance.

      Lynne

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  18. Hi Lynne,
    I am a professional Canadian Citizen and immigrant.
    I sponsored my wife (Spouse) and brought her to Canada. Before she comes to Canada, during almost 10 years, my parents sent the major part of my inheritance to Canada for me.If I buy a house with that inheritance and the money which I have earned before marriage and we divorce,does my wife gets a part of this property?(Buying property after marriage but all the down payment provided before marriage)

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  19. It sounds like this(correct me if I am wrong); if you are married and you receive a inheritance , so long as you keep it 100% separate it is yours to keep if the marriage dissolves . Correct ?

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    1. As a general rule, that's correct.

      Lynne

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    2. Thanks Lynne,

      Here is the exact situation:
      I came to Canada in 2014
      I have been receiving an amount of money from my parents (more than 100k) as financial support since that time.I agreed with my family to supply this support from the major part of my inheritance (Some properties in my original country).Now I am married, I have to options, first to return the money to my parents who are alive and second they agree to leave it for me in Canada and I buy a property.
      Considering that I am married now,if I put this money as a down payment and pay all the mortgages from my salary,in case of divorce, can I have all this property or the court will tell me that because the mortgage is paid after marriage we should divide it?

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  20. Lynne, my mother recently died leaving me her sole heir. While she was ill, my husband and I were joint powers of attorney and he managed her investments. The money is now being transferred to an account in my name, but my husband wants to be put on the account so he can continue to trade it. I would prefer to keep at least some of the inheritance separate as our marriage has been a bit rocky. What are my options? Can I allow him to trade in the account diverting the income generated to a joint account without giving him a power of attorney to do so in my name which would give me no protection or control over the assets? Also, would allowing him access to the dividends be considered comingling and render the principal communal property?

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  21. Hello Lynne - I have what appears to be a complex situation to figure out. I have been living with my gf since ~ Jan 2012. During the time since, she has gotten a divorce settlement from her ex (~1.5 mil), a lawsuit judgement (~ 38 mil), and an inheritance from her friend (~1.5 mil). Her family learned of this and tried to claim she was unfit, etc, etc. Then they got together with a group and did everything they could to break us so we couldn't fight back (stealing from our bank accounts, causing us to lose our jobs, they even tried to poison us). For the last 5 years we have been spending everything we had on legal fees - the lawyers we had don't get paid until we get paid. I have lost my house, and we were homeless for ~ 3-1/2 months because of this. We are right now walking a tightrope, trying to make it through each day, and its really shaky. All of these things were in her name. I believe I might have been named as a beneficiary as part of the inheritance, but I'm not sure. My question is: If we were to split while all of this is being settled, would I be entitled to any of it ? I haven't talked to any of the lawyers involved, because they won't talk to me/acknowledge that I exist. I have paid probably 75% of the legal fees so far, which I estimate to be well over 100k. When she first moved into my house, she found out she had cancer, and had been locked out of her apartment. There are a few other details that we are still finding out about the gang stalking thing. What do you think ?

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  22. Both on the title, marital home, selling with consent, once completed, how is that money distributed? fear is selling spouse takes control of that money, decides to keep it.

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  23. Question #1. Does a 2010 Marriage trump a 2006 Will? (Ontario)
    Question #2. How does the 'new Marriage invalidating a pre-existing Will' rule vary across Canadian provinces?

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    1. Yes, in Ontario a new marriage invalidates an existing will. If you'd like a detailed breakdown of how these rules work in all provinces and territories of Canada, I suggest you buy my book called "The No Nonsense, Real Life Guide to Estate Planning in Canada" and check out chapter 8.

      Lynne

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  24. Hi Lynne,
    I have been in a common law relationship for 10 years. We are now separating. We have two kids, 6 and 5. My ex-partner is trying to convince me that the house proceeds will not be split in half. We purchased the house in 2012 shortly after our second son was born. There was a bit of a glitch at the beginning. He got his inheritance money and put it into our joint account, which was given for the purpose of a downpayment. He first placed the house in his name only, and then added my name to it a couple weeks later, as I was upset that he did that.
    So the issue now, 5 years later, is that he says he is entitled to his inheritence money back.
    Would you please shed some light.
    Suada.

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  25. hi there, i recently received a early inhertance of a home, after transfering the home, i added my spouses name to the title, is she now intitled to half the home in a divorce?

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    1. I don't practice family law so I can't really comment on what anyone will or won't get in a divorce. All I can do is tell you the general rules of inheritance of property that will apply.

      As a general rule, anything that you inherit is not divided up on divorce. However, in your case you have actually given your spouse some of what you inherited so it can now be divided in case of a divorce.

      Lynne

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