Is My Inheritance Shared When We Separate in Ontario?

If you received an inheritance during your marriage, you may worry that it will be split with your spouse when you separate. Or you may be the spouse who wants to know whether you share in it. Both are common questions, and the answer depends on what the inheritance became.

Ontario's Family Law Act has a specific rule for gifts and inheritances. This article explains how it works in plain language, where it stops protecting you, and what you can do to preserve your position.

The basic rule: inheritances are generally excluded

When married spouses separate, the spouse with the lower net family property is entitled to one-half of the difference between the two. Net family property is the value of property a spouse owns on the valuation date, except excluded property, less debts and the net value of property owned at the date of marriage.

Excluded property includes property, other than a matrimonial home, acquired by gift or inheritance from a third person after the date of the marriage. A third person means someone other than your spouse, such as a parent or relative. Other exclusions include certain insurance proceeds, personal injury damages, and property that a domestic contract says is excluded.

In other words, an inheritance you received during the marriage is generally kept out of the equalization calculation, even though it is in your name when you separate.

You have to prove it

The person claiming a deduction or an exclusion bears the onus of proving it. If you say money was an inheritance, expect to show where it came from and where it went.

• The will, estate documents or a letter from the estate lawyer
• Bank statements showing the inheritance being deposited
• Records showing where the money went afterwards
• Statements that show the account balance before and after the deposit

Keeping these papers now is far easier than reconstructing them years later.

When protection can be lost

The exclusion is not unlimited. The Court of Appeal for Ontario has confirmed that the exclusion also covers property into which gift or inheritance property can be traced, other than a matrimonial home. The key idea is tracing. If you can show a trail from the inheritance to the asset you hold now, that asset may still be excluded.

The same court has confirmed that presumptions of joint ownership, such as for a joint account, can be rebutted. Depositing inheritance money into a joint account did not automatically make it lose its excluded character. That is helpful, but it does not mean mixing money is safe. The more it is combined with other funds, the harder it can be to prove what belongs to the inheritance, and you carry that burden.

The family home is treated differently

The exclusion does not apply to a matrimonial home. The full value of the family home is shared even if it was owned before the marriage, gifted or inherited, unless the spouses agree otherwise. By contrast, a gift or inheritance of a non-home asset can be kept out of the calculation.

A matrimonial home is property in which a person has an interest and which is, or was at separation, ordinarily occupied by the person and their spouse as their family residence. Both spouses have an equal right to possession of it. This means that inheritance money used to pay for or renovate the family home may be hard to protect. Whether and how much depends on the facts, so get advice before assuming either way.

Inheritance before marriage, unmarried partners and agreements

If you received the inheritance before the marriage, it is not excluded in the same way, but the net value of property owned on the date of marriage is deducted. Property owned before the marriage is usually shared only for any increase in value.

Unmarried partners are not spouses for the equalization rules. Common-law couples are not legally required to split property acquired while living together, and may use a cohabitation or separation agreement instead.

A domestic contract can also say that property is excluded. Marriage contracts, cohabitation agreements and separation agreements can deal with property division, and both partners must sign in front of a witness who also signs. Courts can divide property unequally only where an equal split would be extremely unfair to one spouse. That is a high bar, so do not count on it.

What to do next

• Collect the estate documents and bank records showing the inheritance and its path.
• Identify whether any of the money went into the matrimonial home, a joint account or shared spending.
• Write down the date you married and the date you separated, since both affect the calculation.
• Avoid moving inherited money around without keeping a clear record.
• Note the time limits: an equalization application must be brought by the earliest of two years after divorce, six years after separation, or six months after the first spouse's death.
• Speak with a family lawyer before you sign any agreement involving the inheritance.

If an inheritance is expected but has not yet been received, timing can matter. Ask a lawyer how it would be treated in your situation.

Frequently asked questions