How gifts and inheritances are treated for family law purposes in Ontario

It may feel completely counter-intuitive to have your second wedding dress fitting right after a consultation with a family law lawyer but it does make sense; - ignorance of the law is no defence to a legal problem you may be facing in the event your marriage does not work out. Now let me unpack this mouthful.

In my 27 years of practice as a family law lawyer I vividly recall many, many occasions when a client sitting across my desk shook their head in disbelief on hearing that putting their inheritance into a joint account or spending a large gift they received from a family member on the matrimonial home had a very real and negative impact on how property was divided on separation. My caution in the first paragraph is essentially this: inform yourself about the law before you take financial steps during the course of your marriage (or better yet even before you marry) because those steps may have a very real impact on what you owe your spouse on separation or what he or she owes you.

Ontario's Family Law Act provides us with a mechanism for dividing assets and debts on separation (for married spouses only). This formula, known as equalization of net family property, is unique to our province. In Ontario, we do not divide the actual assets to begin with, we divide their value. On the subject of gifts and inheritances received from third parties during the marriage, the equalization formula accounts for specific assets, known as excluded property, which the recipient does not share with their separated spouse. To use a very basic example, if Sally received a Picasso painting during the marriage from a distant uncle, and then placed the painting in a safety deposit box where it remains at separation, assuming Sally is able to prove the gift, the value of the painting will not be shared by Sally with her spouse on separation. And by the way, gifts and inheritances from third parties are not the only types of assets that go into the excluded property category but we will focus on those in this post.

There are some important exceptions to the treatment of excluded property and spouses-to-be should, in my view, be aware of these exceptions before they say “I do”. The Family Law Act directs that the person claiming the exclusion must be able to prove it, and to trace it as at the separation date meaning that they need to be able to show either that it still exists in its original form or that it has transformed into another asset, like a bank account for example or a GIC. Also, the portion of the gift or inheritance that has been spent between the gifting and the separation date will not be treated as excluded property.

Importantly, gifts and inheritances spent on the matrimonial home do not attract the special treatment accorded to excluded property. Also, if you deposit your gift or inheritance into an account which you hold jointly with your spouse, there will be a presumption of gift. The issue is then far from straightforward and in the end, you may lose at least a part of the exclusion.

Here is my caution again - inform yourself. Do not rely on what friends tell you or what you might have read on social media. The most reliable source of information about family law in Ontario is a family law lawyer.

©AJJakubowska