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Wednesday, September 7, 2011

If I inherit from my parent, do I have to share with my spouse on divorce?

The readers here certainly keep me busy with excellent questions. Here is another question that I believe will interest many of you:

"If a married person inherits property from their parent, is that property theirs alone? or does their spouse have legal right to it, in the event of a divorce?"
 The intersection of estate and family law is always complicated.  The general rule or starting point is that inherited property is exempt from being divided when a couple breaks up, but the answer to this question is going to depend on several factors.

The first factor to consider is the law in your particular province. Divorces themselves (i.e. the dissolution of the marriage) is governed by federal law so it's the same across the country. Matrimonial property division, on the other hand, is provincial and differs from one province to another. Laws that govern estate distribution are also provincial, so there is no one combination of laws that applies to every Canadian.

For example, in Ontario, it's possible to state in a will that a gift to an adult child under a parent's will does not become community property in the event of a marriage breakdown. Putting this in a will is specifically allowed under Ontario law though not all provinces have the same provision.

Also remember that the outcome may well be different based on whether the child receiving the gift is alive to receive it when the parent dies, or whether the child has already died before the parent's death.

The next thing to consider is what the child who inherited the property did with it after receiving it (assuming the parent died first and the child survived). If the child used the inheritance to, say, put a down payment on a house in his name and his wife's name, this could well be taken as a gift from the husband to the wife. It will be too late on divorce to say that he wants to take back his gift. It's all very well to say that inherited money is exempt but it's not a very useful rule if the money can't be traced to the inheritance or it has been given to the spouse.

On the other hand, if the child who received the money kept it separate from his (or her) spouse's funds or joint family funds in an account of its own, it will be clear that the child never gifted the money to his or her spouse. Many people think of this point too late.

Another important consideration is the wording of the parent's will which gives the gift to the child. A gift to an adult child in a parent's will should be followed by instructions on what to do if that adult child dies first. Does Joe's mom's will say that if Joe dies before her, Joe's wife gets his share, or his children get his share? Most of the time, the child's share is directed to the child's children and not his or her spouse.

Finally, consider the terms of any pre-nuptial agreement that the child and his or her spouse might have signed. Generally this type of agreement will address inheritances.

I suppose what any reader can take from this post is that a general rule exists, but it is very much affected by the specific facts of any given case.

1 comment:

  1. In your blog above you state that that as long as a person keeps their inheritance money separate that in the event of a divorce it will not be divided. My questions are 1. Does this include any interest that the principal makes if this money is invested as long as that interest is also kept in this separate account and drawn upon only by me? 2. What are the tax implications in keeping this money separate if you are married? I live in Ontario. I have inherited a substantial amount of money and though there is no divorce on the horizon one never knows what the future will bring and I want to best protect this money in case that event does occur in the future. Please advise what I should do this with this money so that it protected as inheritance money now and in the future. Thank you.

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