Protecting Gifts and Inheritance During Marriage

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BY VALERIE DYE

In matrimonial proceedings, the general rule is that gifts and inheritances do not form part of net family property* and cannot be included in property division after divorce.  This is simply a general rule and there are circumstances where gifts and inheritance may be included as part of net family property and therefore be up for division between spouses. To avoid this, persons can take the necessary steps to ensure that their gifts remain as such and will not be affected in the event of a separation or divorce.

The main exception to the general rule relates to the matrimonial home. If either spouse uses a monetary gift or inheritance to purchase property which eventually becomes a matrimonial home, then if there is a subsequent divorce the matrimonial home will be subject to division between the spouses. Further, if a property is given as a gift or obtained through inheritance and that property subsequently becomes a matrimonial home then that property will become part of the net family property and will be divided in the event of divorce. This is spelled out in Section 4 of the Family Law Act which states that property other than the matrimonial home, that is acquired by gift or inheritance from a third party after the marriage is excluded from the net family property.  The Act further states that if a gift can be traced to any property other than the matrimonial home that property is excluded s well.  It simply means that if a spouse if left a cash inheritance and that cash is used to purchase anything else other than a matrimonial home, the property or item purchased with such cash does not form part of the net family property.

It should be further noted that in accordance with section 4(2) of the Family Law Act, income derived from a gifted property is also excluded from net family property, provided that the person giving the gift expressly states so.  In that regard, if one spouse receives an investment property as a gift, the rent or other income from that property would not be included in any calculation to determine the net family property value of the spouse who owns the property and will be exempt from any calculations with regard to division of property.

If a spouse receives a financial gift which is used along with other funds to acquire property other than the matrimonial home, then, provided that the gift can be traced, that portion of the property purchased by the gift will be excluded.  If, on the other hand the financial gift is co-mingled with other assets it would be difficult to trace that gift.

In order to benefit from exemptions related to gifts or inheritance, there must be a clear intention from the donor that the gift is intended to be treated as such.  The parties may sign a declaration of gift stating that the gift or any income from that gift, is not meant to be shared or become part of family assets.  Spouses should also ensure that gifted items are kept separate during the marriage and are not co-mingled with other assets.  Further, if there is no intention to share the gift then no part of it should be used towards the acquisition of the matrimonial home or other family asset. The spouse with the higher net family property will make an equalization payment to the other spouse.

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