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After a relationship breakdown, spouses have the right to divide their property. If the spouses are married, then the property division takes place in accordance with calculations in the Family Law Act. If the parties were not married, the property is divided on common law principles of property ownership and equitable principles of trust. Therefore, both married and unmarried couples have claims to property rights once the relationship breaks down.
In Ontario, married couples who divorce will go through an equalization process, which essentially divides the couple’s total property value in half – but in most circumstances, pursuant to section 4(2) of the Family Law Act, an inheritance can be excluded from equalization.
If an inheritance is received before the marriage, it is not included in the division of assets at the time of divorce. If an inheritance is received after the marriage, whether it will be included in the division of assets will depend on the treatment of the inheritance.
Gifts and inheritances will be excluded from a spouse’s net family property if they were received from a family member after the date of the marriage, and the gift or inheritance was given to the spouse alone, rather than to the family as a whole.
In addition, any increase in the value of a gift or inheritance is not divided between spouses. If the gift or inheritance is sold or transferred into another asset, that asset also belongs to the one spouse alone. Similarly, any proceeds of sale of the gift or inheritance are also excluded.
During your marriage you were able to obtain new furniture, vehicles maybe even a cottage. When divorce proceedings are started it can be difficult to fairly divide the family assets between you and your spouse, even more so if one of you wants more than just their half share. Province law protects inheritances by declaring that a spouse does not have any right to it during or after your marriage, as long as it’s kept separate. To shelter your inheritance from your marriage, you must ensure that it’s segregated from your marital property by avoiding commingling, transmutation, or any non monetary contributions from your spouse.
If inherited assets are transferred to joint names or used for the benefit of the spouses, or have always been used to support the family financially, they will likely to be considered to be part of the matrimonial assets available for division by the Court. For lumpsums or property received shortly before the breakdown of the marriage this is less likely to happen. Although it depends on the capability of meeting the future needs of the family and each spouse, in particular when children and their needs are involved. In summary, the key to retaining inheritances is to keep them separate if possible from the assets of the beneficiary and his/her spouse.
A big issue that can come up with inheritances is commingling. Separate property can become marital property if it is commingled with marital property. For example, if you are left with an inheritance and you put in a separate bank account in your name only and you use it only for personal expenses or personal investments, it will probably still be considered separate property. However, if the inheritance money is put into a joint bank account and used for household expenses for the couple, such as mortgage or car payments for jointly owned cars, then it may be considered commingled.
In addition to avoiding commingling, you can:
As per the Family Law Act, any increase in the inheritance value is counted as a family property even if the inheritance is an excluded property. For instance, you have an inherited property that is worth $600,000 and at your mediation or trial period, your inherited property is worth $800,000, the $200,000 difference is now considered as a family property which is to be evenly divided. In other words, under normal circumstances, if a spouse receives an inheritance during a marriage, the money or property received receives the separate property of that spouse, and the other spouse has no claim to it in the event of divorce.
Divorce cases are typically emotional and stressful. They can quickly spiral into heated legal entanglements, especially if one spouse feels as though he or she is not being treated fairly when the time comes to split the couple’s assets. An attorney experienced in divorce law can make a world of difference for everyone involved and will also help ensure that property is justly divided.
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