Is a Gift From a Parent Excluded From Equalization in Ontario?

A parent helps out with a large gift during your marriage. Then the relationship ends and you wonder whether your spouse can claim half of it. The answer depends on what the gift was, when you received it and what you did with it afterwards.

This article explains the general Ontario rule, the important exceptions and the kind of proof that is usually needed. It is general information, not advice on your own facts.

The basic rule: gifts from third persons are excluded

In Ontario, when a divorce is granted, a marriage is declared a nullity, or spouses separate with no reasonable prospect of resuming cohabitation, the spouse with the lower net family property is entitled to one-half the difference between the two spouses' net family properties. Equalization is a payment of money, not a split of each asset.

Some property is left out of that calculation. Property, other than a matrimonial home, that a spouse received by gift or inheritance from a third person after the date of marriage is excluded from net family property. A parent is a third person for this purpose, because the rule is about gifts from someone other than your spouse.

The exclusion is subtracted when net family property is worked out. That means the gifted amount does not count toward your total, even though you owned it on the valuation date.

Exceptions that catch many people

The biggest exception is the family home. A family home (matrimonial home) that was inherited or received as a gift is not excluded property and is counted in full in net family property. If a parent gave you a house and you and your spouse lived in it as your family residence, the exclusion generally will not protect it.

Income is the second exception. Income from gifted or inherited property is excluded only if the person who gave it expressly said it was to be excluded from net family property. So interest or rent earned on the gift may be counted unless that was clearly stated.

• A gift of cash or investments received after the date of marriage is generally excluded.
• A gift of the property that becomes your family residence is counted in full.
• Income from the gift is excluded only if the giver expressly said so.
• A gift from your spouse is not a third-person gift, so this exclusion is not the right tool for it.

What if the money went into the home or a joint account?

This is where disputes often arise. The Act also excludes property, other than a matrimonial home, that excluded assets can be traced into. Tracing means showing, with records, that the property you now hold is what the gift turned into.

The exclusion and the tracing rule both apply to property other than a matrimonial home. Whether gifted money put into the family home can be separately recognized is a question that depends on the facts and the evidence, and a lawyer can help you assess it.

A joint account raises a different issue. A person may apply to the court to decide a question between them and their spouse about the ownership or possession of particular property. How a gift deposited into a joint account is treated depends on the facts, so it is worth confirming with a lawyer. Whether mixing the money weakens a tracing claim is not something to assume either way, so keep the paper trail.

You carry the burden of proof

The person claiming an exclusion under the Act has to prove it. For a parent's gift, that usually means showing that it was a gift (not a loan), when it was received and where it went.

Court disclosure also matters. A party making a property claim must serve and file a financial statement in Form 13.1. Before a settlement conference or trial, each party must also serve and file a net family property statement in Form 13B. Keep your records of the gift organized so they are ready when those documents are prepared.

What to do next

If a contract exists, it can change these rules. A domestic contract that deals with a matter also dealt with in the Family Law Act generally prevails, and property excluded by a domestic contract is excluded from net family property. A marriage contract can also exclude the matrimonial home's value from net family property, although it cannot limit a spouse's possession and consent rights in the home. Check whether you signed one.

• Ask the parent for a short signed note saying the money was a gift, if you can still get one.
• Collect bank statements showing the deposit and each place the money went.
• Note whether any of it went into a home, a joint account or an investment.
• Find any marriage contract or cohabitation agreement.
• Speak with a family lawyer before you sign any financial statement or agreement.

Frequently asked questions