It’s not uncommon for a spouse to get a gift or inheritance from his or her family. Someone will get a sum of money for a down payment towards a first home. Others will get a car gifted to them or an inheritance under a will. But what happens to these assets in a separation? Does an asset given to you stay yours or do you have to share its value with your spouse?
Upon separation, and if parties are married, all assets and debts accumulated during the marriage are equalized essentially meaning that everything the parties own solely or jointly is pooled together and split equally. Gifts and inheritances, however, are treated in a special way. If you or your spouse receive a gift or inheritance during the marriage, it can be excluded from any division of assets. However, a gift or inheritance needs to be treated a certain way in order for a spouse to be able to claim the exclusion.
Excluding a Gift or Inheritance
You must be able to prove the gift or inheritance still exists at separation. With something like a gifted car or other item, this can be easy – you have the physical item. With money though, this becomes difficult. If you’ve put gifted or inherited money into a joint account or mixed it into your personal savings account, you now won’t be able to show what portion is the gifted or inherited amount. In other words, you can no longer show the gift or inheritance in its original form.
To avoid confusion, keep your monetary gift or inheritance separate. If this money is in its own separate bank account or investment, it’s pretty clear and hard to dispute otherwise.
What happens though if you’ve used your gifted or inherited money to buy something else, like a boat or stocks? As long as you can trace the purchase back to the gift or inheritance, this too can be excluded. If only a portion of your purchase was covered by the gifted or inherited funds then only this portion is excluded. Remember though, without a paper trail, excluding an asset is difficult and will likely not be accepted by your spouse and his or her lawyer.
Gifts or Inheritances and the Home
People commonly use gifts or inheritances to purchase or pay down the mortgage on the Matrimonial Home. The money may also be used towards renovations. While it appears innocent, the treatment of gifts and inheritances used for a home is very different. If a home is gifted to you or you use such funds towards the Matrimonial Home, the law will not allow you the exclusion. The value of the home is shared between the spouses upon separation.
Growth on your Gift or Inheritance
While the date of separation value of the gift or inheritance is excluded, any growth is included. This means if your inheritance gained interest or you’ve received other income from it, this would be shared by you and your spouse. This is also true of gifts or inheritances received before you got married – the growth in value will be included in your division of assets.
Protecting your Gift or Inheritance with a Domestic Contract
A Domestic Contract – either a Marriage Contract or Cohabitation Agreement – lets you and your partner or spouse to protect any inheritances or gifts you may have. If a home has been gifted to you that you and your spouse now live in, a Contract can protect this asset. You can also protect any gifted or inherited funds put into your home or any gains to inheritances or gifts. So long as you both agree, these will be excluded and will not be shared upon separation.
If you have received a gift or inheritance, protecting it in case of separation is important. Please don’t hesitate to contact us and we can review the options best suited for you.