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When couples separate or divorce, they often don’t know if family gifts or inheritances stay separate or become communal property.

Read: How to handle tricky spousal support issues

While a thorough review of each case’s circumstances is always required, in general, Ontario law regarding gifts and inheritances is based on timing.

Gifts and inheritances received before marriage

Gifts and inheritances received before marriage are treated the same way as pre-marriage assets. This means the value of the gift or inheritance that was still in existence at the time of marriage belongs to the recepient. If that gift or inheritance still exists when the couple separates and its value has increased, the amount of the increase is divided equally between spouses.

For example, say a daughter is given family business shares worth $500,000. When she marries, the shares are worth $600,000. After several years, she and her husband separate and the shares are worth $700,000. The result: both the daughter and her spouse share 50% of $100,000 ($700,000 − $600,000), which is $50,000.

In another example, a son inherits $100,000 and uses some of it to travel. When he later marries, $50,000 remains. Upon separation, he has only $30,000 left after spending $20,000 during marriage. In this case, he deducts from his ledger the pre-marriage value of $50,000 and includes an asset of $30,000. So in effect, his net worth on separation is negative $20,000, meaning he reduces his total assets that are divided on the separation date by $20,000.

Gifts and inheritances received during marriage

Normally, the part of a gift or inheritance received during marriage that still exists on the date of separation isn’t shared with the spouse if certain conditions exist:

  1. The gift or inheritance is kept separate and not commingled with joint assets (“commingling”  would happen if it was placed in a joint bank account or used to pay a mortgage of a jointly owned home).
  2. A written document expressly states that the gift or inheritance belongs to only one spouse and not the couple. In this case, the donor and recipient must keep copies of all documents, as the onus of proof falls to the recipient.
  3. The gift or inheritance is specifically excluded in a marriage or cohabitation agreement.

Read: 4 ways to negotiate a marriage agreement

However, a gift or inheritance is likely to be shared between separating spouses in the following situations:

  1. The gift is given to the couple for the wedding, as a housewarming present, for an anniversary or other celebration.
  2. The gift is given to one spouse but later commingled with joint assets, and the donor did not specify the intention to benefit only one spouse.
  3. The inheritance is given to only one spouse but then commingled with joint assets or is used to pay for joint living expenses.

There are many nuances and complexities to this area of law, and appropriate legal advice is required.

Also read:

Why family gifts and loans require planning

How one advisor helps same-sex couples

Nathalie Boutet is a family lawyer, mediator and certified Family Enterprise Advisor™ specializing in high-net-worth families and business owners. She is also a deputy judge in Small Claims Court. She can be reached at nboutet@boutetfamilylaw.com.
Originally published on Advisor.ca
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