How Are Inheritances and Gifts Treated Upon Marriage Breakdown In Ontario?

When a marriage breaks down, the Family Law Act (“FLA”) in Ontario sets out how a couple’s property is to be shared in the event the couple does not have an enforceable Marriage Contract in place setting out a different regime. The value of some assets, such as a gift or inheritance from a third party, may be treated differently from the couple’s other assets if they meet certain requirements.

Firstly, the gift or inheritance must have been received after the date of marriage. For example, if a spouse inherited a valuable piece of art before marriage, the increase in the art’s value must be shared between the spouses so long as it is still owned by the spouse at the date of separation. If a spouse inherited the piece of art after marriage, he or she is able to exclude from any property division its full value on the date of separation as well as any increase in its value.

On the other hand, if a spouse was gifted or has inherited money, it would need to have been kept in a separate account or other solely owned asset in order for the spouse to be able exclude it from a claim in the event of separation. For example, if a spouse buys an RRSP in his or her name only and still owns it on the date of separation, its value including any increase in its worth over the course of the marriage can be excluded. However, if the money is placed in a mixed account with the spouse’s other funds, he or she will likely not be able to trace or prove where the inherited money and its increase in value has gone and will therefore lose the exclusion.

Finally, if a spouse inherits money after marriage but has used the money to make payments on the matrimonial home (such as mortgage payments, renovations, additions, etc.) the exclusion will most likely be lost in the event of a separation. The spouse will have to share the full value of the home on the date of separation and not just its increase in value, as in Ontario the matrimonial home is treated differently from any other type of asset.

In order to prevent the loss of a gift or inheritance, the funds should not be put into the matrimonial home unless the couple has an enforceable Marriage Contract prepared by a family lawyer, with independent legal advice having been provided to each spouse.

The bottom line is this: if the gift or inheritance comes in the form of cash, it should be kept separate and apart from other mixed accounts or solely owned assets. The spouse should open a separate account in his or her name only and use it to buy a single investment account to be kept separate from other investments, or it should be locked into a long-term investment.

If a spouse places a gift or inheritance into a joint account or uses it to purchase property owned jointly with the other spouse, the court will presume as per section 14 of the FLA that the spouse intended to make a gift of half of that money to the other spouse. The gifting spouse can then only exclude the half that he or she is now deemed to own and will lose the exclusion for the half presumed to have been gifted to the other spouse.

For more information and legal advice, contact Melody MacDonell at 613-232-1830 for a free half hour consultation.


This article is provided as an information service by Rasmussen Starr Ruddy LLP. It is distributed with the understanding that it does not constitute legal advice or establish a solicitor-client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision-making. Please consult with us and obtain a written opinion concerning the specifics of your particular situation.