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.

What do the in-laws get?

I met with two separate sets of clients this week who asked similar questions. They wanted to know if they were leaving a part of their estate to their married adult child, and the child died before they did, whether the child's spouse would inherit the share that the child would have received if living. This is a very common question.

For example, John and Mary are the parents of Dan and Doreen. Dan marries Janet. John and Mary make Wills leaving their estate equally to their children, Dan and Doreen. Dan dies before his parents do. The question is whether Janet gets Dan's share of the estate.

In Alberta, the answer is no, Janet does not get it, unless John and Mary's Wills say that she does. Most parents whose children are now adults choose to state that should one of their children die before they do, the child's children (John and Mary's grandchildren) will inherit the share that the child would have received. This is also what would happen if John and Mary did not make Wills and the estate was distributed according to intestacy laws. The general rule is that inheritance follows bloodlines, and a son-in-law or daughter-in-law is not in the bloodline.

This is the kind of issue that you should talk out with your estate planning lawyer to make sure you understand what would happen in your case. For example, if Dan and Janet have children who are under the age of 18 and who inherit money from their grandparents, the money must be held in trust until they become adults. During the time the money is in trust, it would be quite common that some amounts would pass through the hands of the surviving parent (in this case, Janet) on behalf of her children. Sometimes this is a problem for the grandparents, if, for example, Dan and Janet were divorced. If that were the case, John and Mary might not be comfortable allowing the children's money to be handled by Janet.

You can give fairly specific instructions in your Will about how trust funds are to be handled. It's always a good idea to be up front about your concerns and goals so that your lawyer can make suggestions about how to address them in your Will.