Excluded Property in Ontario: Gifts and Inheritances on Separation

You may have received an inheritance from a parent or a gift from a relative during your marriage. When the relationship ends, a natural worry is whether your spouse will be entitled to share in it.

In Ontario, the answer often turns on what you did with the money and where it ended up. This article explains the general rules for married spouses, the common ways protection is lost, and what to gather before you speak with a lawyer.

How excluded property fits into the sharing of property

When spouses separate with no reasonable prospect of resuming cohabitation, or a divorce is granted, the spouse with the lower net family property is entitled to one-half of the difference between the two spouses' amounts. This is called equalization.

Net family property is the value of all property a spouse owns on the valuation date, except excluded property, less debts and certain other deductions. The valuation date is the earliest of several dates, and for many couples it is the date of separation. So excluded property is simply left out of the number that gets compared.

What can be excluded

The Family Law Act lists the kinds of property that are left out of the calculation. The main ones are:

• Property acquired by gift or inheritance from a third person after the date of marriage.
• Damages for personal injuries and the proceeds of a life insurance policy.
• Property the spouses agreed, by domestic contract, to exclude.
• Income from a gift or inheritance, but only if the person who gave it or left it expressly stated that the income is to be excluded.

The word "third person" matters. Only gifts and inheritances from someone other than your spouse are excluded, so gifts between spouses are not protected in this way. A court may still consider such gifts when deciding whether to vary the equal share.

How protection can be lost

An inheritance or gift can be excluded in theory and still end up shared in practice. The most common reasons are these:

• The property is a matrimonial home. The exclusion for gifts and inheritances does not apply to a matrimonial home.
• The money was put into the family home. Excluded property can usually be traced into other property and stay excluded, but not into a matrimonial home, so a gift or inheritance used to buy or pay down the family home loses its protection.
• The income was not expressly excluded. Income from inherited or gifted property is excluded only if the donor or the will said so.
• It cannot be proven. The spouse claiming an exclusion has the onus of proving it.

A home can qualify as a matrimonial home if it is or was ordinarily occupied by the spouses as their family residence, and a couple can have more than one. Whether a cottage or rental counts depends on the facts, so it is worth getting advice about your particular property.

Joint names, contracts and unmarried partners

Putting inherited money into a joint account or joint title can change how it is viewed. Property held in both names as joint tenants is presumed to be jointly owned, and money on deposit in both names is treated as held in joint tenancy.

A written domestic contract can also change the outcome. It is unenforceable unless it is in writing, signed by the parties and witnessed, and it prevails over the Act unless the Act provides otherwise. A marriage contract term that tries to limit a spouse's rights in the matrimonial home is unenforceable.

If you are not married, these equalization rules do not apply, because they cover only a "spouse" as defined, which does not include unmarried cohabitants. Common-law partners are generally not required to split property, which belongs to whoever bought it, although a partner who contributed to the other's property may have a claim.

What to do next

Start collecting proof now. Each party in an equalization application must serve and file a sworn statement of property, debts and other liabilities, covering the date of marriage, the valuation date and the date of the statement, along with any claimed exclusions. Supporting documents, including account and investment statements issued closest to the valuation date, are due within 30 days after the financial statement is due.

• The will, estate documents or a letter showing who gave or left you the property and when.
• Bank and investment statements showing where the money went.
• Records of any amounts paid toward a home's purchase or mortgage.
• Any marriage contract, cohabitation agreement or separation agreement.
• The date you believe the valuation date falls on.

Time limits apply. An equalization application must generally be brought by the earliest of two years after a divorce, six years after separation, or six months after the first spouse's death. A lawyer can confirm which deadline applies to you.

Frequently asked questions