Keeping What’s Yours: How Gifts and Inheritances Are Treated in Separation

Am I required to share my gifts and inheritances with my spouse upon separation?

When married couples separate, their “net family property” (the difference between a spouse’s net worth on the date of separation and date of marriage) must be divided equally, or “equalized”, subject to certain exceptions – a process referred to as “equalization”. However, not all assets will form part of a spouse’s net family property that is then subject to equalization: one common exclusion is gifts and inheritances received by a spouse during the course of their marriage. 

Section 4(2) of the Family Law Act provides:

4(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.
2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.

…

5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.

This provision makes it clear that gifts and inheritances can be excluded from equalization when they are (1) acquired from a third person, (2) during the marriage, (3) not a matrimonial home, and (4) traceable, if the gift or inheritance is no longer in its original form at the time of separation.

Notably, it is the value of the gift or inheritance as of the date of separation, as opposed to the value at the time of receiving it, that is excluded. For example, if a spouse receives a cash gift of $100,000 from their parent but spends $20,000 of it on expenses that cannot be traced, then only the remaining $80,000 (plus applicable income generated from the gift) will be excluded from their net family property upon separation. As a different example, if a spouse receives a depreciating asset (such as a car) as a gift, then only the depreciated resale value as of the date of separation will be excluded.

When a spouse seeks to rely on this exclusion, and particularly the exclusion of income generated from the gift or inheritance, it is important that the spouse keeps evidence, such as a gift letter or will, to support their claim, as the law does not presume a gift, and the donor or testator must expressly request any income generated from the property to be excluded.

However, there are two common ways that a spouse can lose this exclusion even if the gift or inheritance is traceable as of the date of separation:

1. If the spouse uses the gift or inheritance to purchase a matrimonial home, they will lose the exclusion of their entire contribution to the matrimonial home, regardless of legal title.
2. If the spouse uses the gift or inheritance to purchase a joint asset that is not a matrimonial home (such as a vehicle in the spouses’ joint names), they will lose half of the exclusion.

In family law litigation, the tracing of gifts and inheritances can often be controversial depending on the factual circumstances, but there are best practices that you can follow to minimize your exposure. If you are anticipating a large gift or inheritance coming your way, you should consult a family lawyer about how the gift or inheritance may be impacted by a separation and how to best manage the situation.

Disclaimer: This article provides general legal information and is not a substitute for legal advice. If you have a specific legal issue, you should consult with a qualified family lawyer.