The Family Law Act in Ontario declares married couples getting divorced receive 50% of assets accumulated during their marriage. However, the division of wealth does not have to be split exactly 50/50 so long as the distribution is fair.
Usually, inheritance is not subject to division if specific criteria are met, including signing a prenuptial agreement and maintaining separate ownership from one’s overall family assets.
What is net family property?
Net family property is the combined value of assets a couple accumulates during marriage, minus any debts. This includes real estate, investments, pension plans, and business interests.
During divorce proceedings, each spouse's net family properties are calculated and compared to determine if an equalization payment is needed. This process achieves financial equity for both parties.
For example, suppose one partner accumulates greater net worth than the other during their marriage. In that case, they will have to share a portion of their net family property - whether in monetary or asset form, to achieve a fair division of wealth.
What is excluded property?
Excluded property, such as personal injury settlements and life insurance policies, is not subject to division in a divorce settlement.
Assets or property a spouse is given as an inheritance or gift from a third party while married are also excluded from the calculation of net family property so long as
- The inheritance is kept separate or
- The donor has expressly stated it will be excluded from the spouse’s net family property.
Additionally, inheritance and assets specifically excluded in the prenuptial agreement are exempt from division.
Are There Exceptions to Excluded Property?
There are several exceptions to excluded property during divorce in Ontario. These include:
The Matrimonial Home
For Ontario residents, a matrimonial home is any property - a condo, apartment, house, etc. - that's both spouse's primary residence.
According to the law, each spouse has equal rights to possess it, regardless of who owns it or whose name is on the title.
This means matrimonial rights still apply if one spouse owned the home before marriage, inherited the property, or received it as a gift.
Furthermore, even if said spouse put in a down payment on the home or renovated it with inherited money, they would likely lose out on that inheritance in the event of a divorce.
Co-mingling Assets, Property or Money
The issue of asset ownership becomes complicated when couples use the separate property as a joint asset.
For example, if a spouse uses their $20,000 inheritance to pay for a holiday home they jointly own with their spouse, the law presumes that $10,000 is gifted to the marriage, and the other $10,000 remains exempt.
Similarly, if a spouse deposits inherited funds into a joint bank account to pay for family purchases, it’s no longer considered separate property and would be divided during a divorce.
As Usma Sadiq, a Toronto divorce lawyer from Simple Divorce, says, “If the inheritor commingles the inheritance with their [marital] property or uses is to benefit the marital estate, it may be considered part of the matrimonial property and subject to division.”
An Increase in Inheritance Asset Value
If a spouse receives property or an asset as inheritance before marriage, any increase in its value will be divided between partners during a divorce, provided the property or asset is still owned by the one partner at the time of separation.
For instance, if one spouse inherits a collector’s car worth $100,000 before marriage, and the value increases to $150,000, the other spouse is entitled to $25,000 even though the physical vehicle still belongs to one spouse.
If a Spouse Passes Away During a Divorce, Does Their Spouse Get Their Inheritance?
Usma Sadiq points out that “spouses do not automatically inherit everything from their partner. However, this depends on whether the deceased has a will or not.”
According to the Ontario Succession Law Reform Act, if a spouse passes away without a will, their assets, including their inheritance, will be distributed as follows:
- If they are married without children, the surviving spouse will receive their entire estate.
- If they are married with children, the surviving spouse will receive the first $350,000 of their spouse’s estate. Leftover money or assets is then divided between the spouse and children.
Where there is only one child, the leftover assets are divided equally between the child and the spouse. If there are two or more children, the spouse gets one-third of the balance, and the remaining assets are divided equally among the children.
Naturally, if there is a will, the inheritance will be divided according to the deceased spouse's wishes.
Are Common Law Partners Entitled to a 50/50 Split of Accrued Wealth?
Those in a common law relationship are not entitled to 50% of anything their partner owns unless the property is jointly owned and registered equally.
So, unlike marriage, if one partner owns the primary residence, the other partner does not automatically receive 50% of its value.
The only exception is if one partner invested in the property, such as paying for home improvements, despite not owning it. Then, they would be entitled to share the property upon separation.
However, if they have a cohabitation agreement that outlines how their property will be divided in the event of a separation, it will take precedence over default rules.
How to Keep Your Inheritance Safe from a Divorce Settlement
Below are recommended precautions to protect your inheritance from a divorce settlement.
1. Use a Separate Bank Account
During a divorce, you must prove your inheritance existed at the time of separation. Should it come in cash, it’s advisable to keep the money in a separate account; otherwise, it won’t be excluded from net family property.
2. Note the Value of the Inheritance at the Time You Received It
Remember, unless the person gifting you an inheritance explicitly states in writing it is to be excluded from the net family property, your spouse will be entitled to additional value accrued during your marriage.
Therefore, interest on money in savings, dividends from stock, or rental income from an inherited rental property is all up for grabs. That’s why, to make calculations easier, it’s essential to take note of the value of the gift or inheritance upon receipt.
3. Get a Prenup or Postnuptial Agreement
As Usma Sadiq explains, “The best way to ensure your inheritance is protected is to contact qualified lawyers. They can help you navigate the complex laws surrounding ownership and division.
If you have a prenuptial or postnuptial agreement in place that outlines how inheritance will be handled, that agreement will take precedence over the default laws.”
Hire a Qualified Family Lawyer
Simple Divorce offers proficient and efficient legal services to resolve your family law issues effectively. Our experienced lawyers will guide you through the legal process and ensure your divorce is finalized as quickly and smoothly as possible.
We understand that divorce can be a stressful time. If you’re going through an uncontested divorce and want a straightforward process, we can help. Contact us today for a free consultation.
