Inheritance Used to Pay Down the Matrimonial Home Mortgage in Ontario

You received an inheritance and used it to pay down the mortgage on the family home. Now the relationship is ending and you want to know whether that money still counts as yours alone.

The short version is that Ontario protects inheritances in many situations, but the matrimonial home is treated as an exception. This article explains the rule, how tracing works, and what to gather so a lawyer can look at your facts.

The starting point: inheritances are usually excluded

Under the Family Law Act, property acquired by gift or inheritance from a third person after the date of marriage is excluded from net family property, other than a matrimonial home. The rule also excludes property into which that excluded property can be traced, again other than a matrimonial home.

Tracing means following money from its source to where it ended up, using records. If an inheritance went into a bank account and then into an investment, tracing asks whether the investment can fairly be linked back to the inheritance.

Why the matrimonial home changes things

Both exclusions contain the same carve-out: they apply to property other than a matrimonial home. Ontario.ca also states that a family home that was gifted or inherited does not count as excluded property, and that the family home must be divided equally unless the spouses agree to a different split.

Inherited money used to pay down the mortgage on the matrimonial home raises a harder question, because the exclusions do not apply to a matrimonial home itself. It has gone into the home, which is outside the exclusion. In general terms, that means you should not assume the amount you put in will be protected. How a court will treat your particular payment depends on the facts, so confirm it with a lawyer.

How tracing works with joint accounts

Many people worry that depositing an inheritance into a joint account ends its protection. The Court of Appeal has said that money did not lose its excluded character merely because it was first deposited in a joint account. In one case, an investment account was found traceable to gifts and an inheritance received by one spouse alone, with the income earned on them.

Joint ownership is presumed under section 14 of the Family Law Act, but that presumption can be rebutted by evidence. The takeaway is that documents matter. Clear records of where the money came from and where it went are what make tracing possible.

Other routes that may apply

• Trust claims. Under the Family Law Act, constructive or resulting trust claims may be advanced prior to equalization. Whether such a claim fits depends on the facts.
• Home ownership and sale. The Court of Appeal has confirmed that a half-owner of a matrimonial home is entitled to one-half of the net sale proceeds, less any unpaid share of upkeep costs.
• Unequal division. A court can order an unequal division only where equalization would be unconscionable. It is not available simply because one spouse contributed more.
• A domestic contract. Spouses can vary the default rules by a domestic contract such as a cohabitation agreement or separation agreement. Property the spouses agreed by domestic contract is not to be included is excluded from net family property.

A marriage contract or cohabitation agreement must be signed by both parties in front of a witness, and the witness must also sign. A court may set aside a domestic contract or part of it if, for example, a party failed to disclose significant assets or debts, or did not understand the contract's nature or consequences. If you signed something when you put the inheritance into the home, bring it to your lawyer.

What to do next

Married spouses have six years from the day of separation or two years from the day the divorce is final, whichever comes first, to bring property claims. Start gathering records now rather than late in the process.

• Estate documents showing the inheritance, the date received and the amount.
• Bank statements showing where the money went, step by step.
• Mortgage statements showing the lump-sum payment or paydown.
• Any written agreement, note or email about the purpose of the payment.
• Title documents showing who owns the home and whether it is the matrimonial home.
• Any marriage contract, cohabitation agreement or separation agreement.
• Key dates: marriage, separation, receipt of the inheritance and the mortgage payment.

With these in hand, a family lawyer can tell you whether a trust claim, a contract or the standard equalization calculation is the most realistic path. Courthouse family mediation is free on the day you are scheduled to be in court, and it can help resolve property division.

Frequently asked questions