- An inheritance received after the date of marriage is normally excluded from net family property, but that exclusion does not apply to a matrimonial home.
- Tracing lets excluded money keep its protected status in other property, but the tracing rule also carves out the matrimonial home.
- Putting inherited money in a joint bank account did not, by itself, make it lose its excluded character in one Court of Appeal case, and the court treated that differently from money put into the home.
- How much of your inheritance is affected depends on what happened to the money and what the home is at separation, so get advice before you assume either way.
Many people receive an inheritance during a marriage and then use it on the family home. Some pay down the mortgage. Others fund a new kitchen, a roof or an addition. When the marriage ends, the question is whether that money is still yours alone or whether it has become part of what gets equalized.
Ontario has a general rule that protects inheritances, and a specific rule for the matrimonial home that cuts the other way. This article explains how the two fit together, what tracing means, and what to gather if you are in this position. It is general information, not advice on your own facts.
The general rule: inheritances are excluded
In Ontario, equalization is built on each spouse's net family property. Property you acquire by gift or inheritance from a third person after the date of marriage is excluded from your net family property under the Family Law Act, section 4(2), paragraph 1. A third person means someone other than your spouse, such as a parent or relative.
Net family property is the value of all the property you own on the valuation date, except excluded property, less your debts and liabilities. So an inheritance that stays what it was does not increase the amount you may have to share.
The matrimonial home exception
The exclusion for gifts and inheritances does not apply to a matrimonial home. A matrimonial home is property in which a person has an interest and which the person and spouse ordinarily occupied as their family residence at separation.
This is why using inherited money on the home is risky. The protection that applies to an inheritance sitting in an investment account does not extend to a matrimonial home. In plain terms, the law treats the family home differently from other property.
What tracing means and where it stops
Tracing is the idea that excluded money can keep its protected status even after it is moved or reinvested. The tracing paragraph of section 4(2) excludes property, other than a matrimonial home, into which gift or inheritance property can be traced. In one Court of Appeal decision, traced funds in an investment account stayed excluded.
The same decision considered a joint bank account. Depositing inheritance money into a joint account did not by itself make it lose its excluded character, because the spouse rebutted the presumption of joint ownership with evidence. The court treated this differently from money put into a matrimonial home.
Notice the pattern: the tracing rule helps when the money ends up in other property, but the words 'other than a matrimonial home' appear in the rule itself. That wording is why a mortgage payment or renovation funded by an inheritance is a problem.
Where your situation may differ
Several points can change the answer, and each depends on the facts. A lawyer can confirm how they apply to you.
- Whether the property is actually the matrimonial home at separation, meaning the family residence you and your spouse ordinarily occupied.
- Whether the inheritance went into the home, or stayed in a separate account or investment that can still be traced.
- Whether you and your spouse signed a domestic contract saying certain property is not to be included, since property agreed to be left out is excluded under section 4(2), item 6.
- Whether the money was kept in a joint account, and what evidence shows your intention for it.
If you owned the home before the marriage, a different rule can matter too. Where property a spouse brought into the marriage is still the matrimonial home at separation, that spouse cannot deduct its marriage-date value. That rule is separate from the inheritance exclusion, but the two often arise together.
What to do next
Start by building a paper trail. The goal is to show where the inheritance came from, where it went and what it paid for.
- Estate documents showing what you received and when.
- Bank statements showing the deposit of the inheritance and every later transfer.
- Mortgage statements, renovation invoices and proof of which account paid them.
- Title documents showing who owns the home.
- Any marriage contract, cohabitation agreement or other domestic contract.
- Records of any inheritance money that stayed in a separate account or investment.
Do not move money or sign anything about the home until you understand the consequences. A family lawyer can review the documents and explain how the matrimonial home rule applies to the way your inheritance was used.
Frequently asked questions
Is my inheritance always excluded from equalization in Ontario?
Property received by inheritance from a third person after the date of marriage is generally excluded from net family property. The exclusion does not apply to a matrimonial home. What happened to the money afterwards also matters.
If I deposit my inheritance into a joint account, do I lose the exclusion?
Not automatically. In one Court of Appeal case, depositing the money into a joint account did not by itself make it lose its excluded character, because the spouse rebutted the presumption of joint ownership with evidence. Your own evidence and facts would matter.
Does tracing help if I paid down the mortgage with my inheritance?
The tracing rule excludes property into which gift or inheritance property can be traced, but it carves out the matrimonial home. So tracing is unlikely to protect money that went into the home. A lawyer can tell you how this applies to your situation.
Can we agree to treat the inheritance differently?
Property that spouses agree in a domestic contract is not to be included is excluded from net family property under section 4(2), item 6. The terms and how the contract was made would matter, so have a lawyer review it.
Sources
- Cortina v. Cortina, 2015 ONCA 750 (Court of Appeal for Ontario) — ontariocourts.ca
- Knight v. Knight-Kerr, 2021 ONCA 686 (Court of Appeal for Ontario) — ontariocourts.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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