By: Christine Manners
Partner, HGR Graham Partners LLP
Many of our clients are concerned what will happen to an inheritance if a beneficiary goes through a separation. Most individuals who leave gifts to beneficiaries in their Wills do not want the inheritance to be shared in the event of a separation of the beneficiary and his or her spouse.
In Ontario, the law that governs the division of property when a married couple separates is the Family Law Act.
Generally, when a married couple separates, their assets will be divided in accordance with a formula that equalizes the monetary gains made by the parties during the marriage. However, there is certain property which is known as “excluded” property which does not have to be included in those assets to be divided between the couple.
Money received on an inheritance is “excluded” property. Subject to the exemptions which I will explain below, if someone receives an inheritance and then later separates from their spouse, they do not have to share the money from the inheritance.
If the inheritance money is put in the bank with other funds which are held jointly by the spouses and deposits and withdrawals are made from the joint account, the protection of the inheritance may be lost. If the inheritance is used to buy a house which is the couple’s “matrimonial home” or the money is used to make renovations to the matrimonial home or to pay down the mortgage on the matrimonial home, the protection of the exclusion is lost. It is therefore important for a beneficiary to educate himself or herself when receiving an inheritance, so they can decide whether they wish to “protect” the inheritance in a possible separation.
Of some comfort is that fact that it is possible to enter into a Marriage Contract to ensure that the inheritance is protected in the event of separation.
We would be pleased to speak to you about specific questions you may have related to the effect of separation/divorce on inheritances.
*The content of this article is intended for general information purposes only and does not constitute legal advice or an opinion of any kind. For information or legal advice on your individual circumstances, please contact Christine Manners.