When two people married to each other separate in Ontario, they must divide their family property in the manner provided for in the applicable legislation (unless they agree otherwise). While most people seem to be aware that the value of gifts or inheritances that one receives from a third party during his/her marriage is excluded from that division, many people are unaware that they may loose that exclusion unless they deal with their gifts and inheritances in a certain manner.
For a person to be able to benefit from that exclusion, he/she needs to be able to prove that the gift or inheritance still existed at the date the couple separated (in one form or another). For instance, if the inheritance was paid in cash and the cash was spent to reimburse debts or to pay for day-to-day expenses, it no longer "exists" at the date of separation. Similarly, if the gift or inheritance money was used to purchase a joint asset or to reimburse a joint debt, the other spouse has by title become a "joint owner" of the value of the gift and the exclusion can no longer be used.
If you receive a gift or an inheritance during your marriage, follow these tips to make sure that the value of the gift received can be retained exclusively by you after separation or divorce:
- Never use your gift or inheritance to purchase a matrimonial home, pay down the mortgage on the matrimonial home or pay for renovations and repairs on a matrimonial home;
- Never use your gift or inheritance to purchase joint assets or pay down joint debts;
- Never use your gift or inheritance to pay down your own debts;
- If you receive a cash gift or inheritance, invest it in an asset (not a matrimonial home) that is in your sole name, and keep clear documentary records of the use you made of that money;
- If you dispose of an asset (let's say a vehicle) that you received by way of gift or inheritance to purchase another asset (let's say a new vehicle), keep the new vehicle in your sole name and keep clear records of the fact that the new vehicle was purchased with the proceeds from the gifted vehicle;
- In case of doubt, consult with an experienced family lawyer who can offer strategies to insure that you retain the benefit of the gift in case of a potential separation or divorce.
Better be safe than sorry!