Is Your Inheritance Protected If You Separate or Divorce in Ontario?

You have received an inheritance during your marriage, and now the relationship is under strain. A common worry is whether your spouse can claim half. The short answer is that Ontario law gives inheritances special treatment, but that treatment has limits, and what you do with the money matters.

This article explains the general rule under the Family Law Act, the main exception for the family home, how common-law couples are treated, and the time limit for making a claim. It also lists practical steps to keep an inheritance traceable. It is general information, not advice on your situation.

The basic rule: inheritances are excluded

When a marriage ends, Ontario generally divides the growth in each spouse's wealth through an equalization of net family property. Not everything you own is counted, though. Property a married spouse acquired by gift or inheritance from a third person after the date of marriage is excluded from net family property.

In plain words, if a parent, grandparent or other relative leaves you money after the wedding, that inheritance is generally not part of what gets equalized. The key phrase is "from a third person." A gift or inheritance that comes from your spouse is not covered by this exclusion.

The exclusion as written applies to gifts and inheritances acquired after the date of marriage. How property you owned before the marriage is treated depends on your situation, so it is worth confirming with a lawyer.

Tracing: the exclusion follows the money

The exclusion does not stop at the original cheque. Property into which an excluded inheritance can be traced is also excluded, with the exception of a matrimonial home.

Tracing means showing a clear path from the inheritance to what it became. For example, if inherited money moved into an investment account and you can show that link, the investment may still be excluded. If the money was mixed with joint funds and spent on everyday costs, the trail can be hard to prove. That is why records matter: the clearer the paper trail from the inheritance to what it became, the easier it is to explain where the money went.

The main exception: the family home

A family home that was inherited or received as a gift is not excluded property, so its value is shared on separation. The same goes for inherited money that is traced into a matrimonial home, because the tracing rule carves out the matrimonial home.

This catches many people by surprise. Using an inheritance to pay down the mortgage or renovate the home you live in as a couple can turn money that was excluded into value that is shared.

Common-law partners and time limits

The Family Law Act property-division rules do not apply to common-law couples. Unmarried partners are not legally required to split property acquired while living together. That does not mean a common-law partner has no options, since other legal claims may be available, so ask a lawyer about your own facts.

For married spouses, an equalization claim has a limitation period. It is six years from the day of separation, or two years from the day the divorce is final, whichever comes first. Because the divorce route can be the shorter one, do not assume you have six years.

The section and subsection numbers mentioned here, such as section 4(2) of the Family Law Act, are worth checking against the current version of the Act on Ontario e-Laws, since statutes are amended from time to time.

Practical steps and what to do next

If you have received, or expect to receive, an inheritance, a few habits can make it much easier to show where the money went.

• Deposit the inheritance into an account in your name only, rather than a joint account.
• Avoid mixing it with joint savings or your regular pay.
• Keep the estate statements, cheques or transfer records showing what you received and from whom.
• Keep records of every move of the money into investments or other purchases.
• Think carefully before putting it into the family home, since that may make its value shared.
• Note the date of the wedding and the date you received the funds.

If your relationship is ending, gather your bank and investment statements and any documents from the estate. Speak with a family lawyer early, both about whether your inheritance is excluded and about the deadline for any claim.

Frequently asked questions