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When Does Inheritance Become Marital Property?


British Columbia’s law entails dividing family property or marital property and joint debts equally between spouses, known as net family property, unless such division would be unjust.

According to the Family Law Act, inheritance funds received from third parties are typically categorized as excluded from marital property, which means they are generally not subject to division in case of divorce. There are exclusions to this, and sometimes excluded property can be categorized as family property.

Our experienced family law lawyers with over 20 years of experience can offer valuable guidance on safeguarding your inheritance money or understanding its implications in a divorce within British Columbia. Whether you seek clarity on how your inheritance may be impacted during divorce proceedings or wish to proactively protect it before or during marriage, contact Onyx Law Group for expert assistance.

This blog post will explore the conditions under which an inheritance can be considered marital property and how you can protect your inheritance before or during marriage, or in the event of a divorce.

Understanding Inheritance and Marital Property

Understanding Inheritance and Marital Property

Inheritance refers to assets passed down to an individual or group of individuals (often known as beneficiaries) from a deceased person, usually through a will or legal document. These assets can include money and savings, real estate, personal property, stocks and investments, or other assets. You can receive an inheritance from a deceased person whether they die intestate (without a will) or testate (with a will).

Marital property is divided into two categories: family property and excluded property. Inheritances are normally categorized as excluded property.

Family property encompasses all assets owned by either spouse individually or jointly at the time of separation, irrespective of ownership titles. Examples of net family property can include purchased marital assets, jointly owned property, the matrimonial home, RRSPs, investments, bank accounts, and other assets that are jointly owned.

Upon separation, family property is typically divided equally unless a mutual agreement states otherwise, or equal division would be significantly unjust.

Excluded property (or separate property) consists of assets one spouse owned before the relationship commenced, as well as gifts and inheritances received during the relationship.

Sometimes, inheritances can be treated as family property. Some examples are:

  • any increase in the value of the excluded property (or separate property) during the relationship is considered family property and is subject to equal division;
  • when the family property is located outside British Columbia and is difficult to divide, excluded property (or separate property) might be divided to ensure a fair outcome for both spouses;
  • when inheritance money is kept in a shared bank account rather than in a separate bank account; and
  • when one spouse gifts their inheritance to their partner.

In the context of divorce, a spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.

If you are wondering how an inheritance gets split in divorce, we encourage you to read our earlier blog post “How Does Inheritance Get Split in Divorce?” where this question is considered in detail.

Inherited funds are considered separate property as long as the funds are kept separate during the course of marriage. For this reason, it is important to only withdraw certain amounts for your marriage from a separate account or to place only what you want to share into a joint bank account with your spouse.

Legal Framework Governing Inheritance and Marital Property

Legal Framework Governing Inheritance and Marital Property

Couples who are married or who have cohabited in a marriage-like relationship for a minimum of two years are assumed to:

  • retain ownership of any assets they brought into the relationship (known as excluded property);
  • bear sole responsibility for any debts they brought into the relationship;
  • jointly own assets acquired during their relationship, along with any appreciation in the value of the excluded property during that period (referred to as family property); and
  • share liability for debts incurred during the relationship, including any growth in excluded debts over the course of the relationship.

As previously mentioned, there are situations when excluded property can be considered marital property. For example, spouses can claim any increase in the value of the inheritance as marital property. Or, if it were unfair to one spouse to claim the inheritance as excluded property, the court can determine that the inheritance be considered family property and be split 50/50.

To increase your chances of an inheritance being considered excluded property, it is important to maintain separate bank accounts with your spouse. If you want to use any of the inheritance money towards your marriage or your spouse, you can withdraw the inheritance funds as needed rather than pool the inheritance funds into a joint bank account.

If you are considering getting married and you have assets, including an inheritance, it may prove worthwhile to speak to a family law lawyer regarding preparing a prenuptial agreement to safeguard your assets. This type of marriage contract is all the more recommended if you think your assets will increase in value after your marriage because your spouse will be entitled to any increase in the value of the excluded property during the relationship.

What to do if you are considering Divorce but have Joint Accounts?

If you are currently married or considering divorce, and you have pooled your inheritance in a joint bank account with your spouse but did not intend to co-mingle the inheritance, you are not out of luck. It is still possible to get the inheritance back in some cases, such as if you can show the court that you did not intend to share the funds.

Contracts like prenuptial agreements (before marriage) and postnuptial agreements (after marriage) can be drafted to safeguard your assets or inheritance.

If you’re married and contemplating the fate of assets you acquired before the marriage, or anticipate receiving an inheritance, consulting with a family law lawyer is advisable. A discussion with a family law lawyer can involve the creation of a postnuptial agreement detailing asset distribution in case of divorce.

When Does an Inheritance Become Marital Property – A Case Study

When Does an Inheritance Become Marital Property - A Case Study

In V.J.F. v. S.K.W., 2016 BCCA 186, a husband received $2 million in inheritance money from a third party that was subsequently used to purchase property put in the sole name of the wife for creditor protection. At trial, the $2 million inheritance money was found to no longer be excluded property under section 85 of the Family Law Act. The court also considered that not dividing the inheritance would be significantly unfair based on the wife’s significant contributions to the improvement and management of the property. The wife made contributions to the household that greatly assisted the husband in developing business relationships. On an appeal from the husband, the court reconfirmed that once the husband gifted the property to his wife, the exclusion was lost.

Protecting Your Inheritance

Protecting Your Inheritance

As previously mentioned in this blog post, a couple of strategies to protect your inheritance are as follows:

  • Keeping separate bank accounts with your spouse. One account including the inheritance, only accessible by you, and another joint bank account that is used by both you and your spouse for marital expenses; and
  • Preparing a prenuptial (before marriage) or postnuptial (after marriage) agreement. We strongly recommend that you contact a family law lawyer to assist you in preparing either of these agreements.

Even if you have a prenuptial or postnuptial agreement, it’s crucial to ensure a clear division between inherited assets and marital ones. While it’s relatively easy to keep certain assets, like real estate or business interests, separate, maintaining this separation with assets such as cash and investments demands careful attention. Establishing a distinct account in your name only and exclusively depositing inherited funds into it is vital. For instance, avoid commingling inherited money with your employment earnings in the same account, even if it’s solely under your name.

In asserting that certain property is excluded from marital assets, a spouse must substantiate its exclusion as separate property. Therefore, maintaining thorough documentation of any inheritance is vital in divorce proceedings. This includes records detailing the inheritance, its source, intended recipients, and acquiring date, along with providing relevant bank statements. Such documentation facilitates establishing the value and origin of inherited funds, making them traceable and offering evidence to bolster claims regarding the division of marital assets. Ultimately, this documentation serves to safeguard one’s inherited wealth throughout separation or divorce proceedings.

When navigating the complexities of inheritance and divorce, it’s crucial to seek personalized advice and strategies from a qualified family law lawyer. Each inheritance and divorce proceeding is unique and requires a keen and detailed eye to ensure that all assets are protected and split equally. We urge you to contact Onyx Law Group today at 604-229-2732 to discuss your case!

Conclusion

If not clearly defined, inheritances can be deemed family property by the court. Nevertheless, there are methods to safeguard your inheritance before and during marriage, such as maintaining its separation from marital assets or arranging legal agreements like prenuptial and postnuptial agreements. However, if you’ve combined your inheritance with marital funds in a joint account, reclaiming it during divorce proceedings can be complex, often involving intricate court procedures.

Onyx Law Group’s team of experienced family law lawyers in Vancouver offers unparalleled expertise and insight. With extensive experience in navigating the complexities of inheritance law and divorce proceedings, we ensure the effective protection of your inheritance in case of divorce. Onyx grasps the intricacies of inheritance-related issues, employing strategies to safeguard your interests. Take advantage of our complimentary 30-minute consultation today!

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