By Lindsay O'Reilly
If you have inherited property or may inherit property in future, it is important to understand how inheritances are treated in divorces and how your actions can change the way Courts view those assets.
The starting presumption, under the Matrimonial Property Act (RSNS 1989, c 275), is that all property owned by a married couple will be split equally. As we often see in law, however, there are exceptions to this rule – and exceptions to the exceptions.
One exception to the “equal division of property” presumption is inherited property.
Under s. 4(1)(a) of the Matrimonial Property Act, “gifts and inheritances” are exempted from division … “except to the extent to which they are used for the benefit of both spouses or their children.”
In a contested divorce situation, the spouse hoping to exclude inherited property must be able to show evidence that said property: a. was gifted or inherited; and b. did not lose its exempt status. Property that was inherited and kept separate from family assets and not used for family enjoyment is likely exempt from equal division.
For example:
- An inheritance of $20,000.00 that was kept in an RRSP in the inheriting spouse’s name and not mingled with family funds is likely exempt from equal division.
- An inheritance of $20,000.00 that was deposited into the parties’ joint bank account, mixed with other family funds and then placed in a joint investment, is likely not exempt.
- An inherited piece of land that was not used by the family and not improved with family funds is likely exempt from division.
- An inherited piece of land that was improved using family funds, to include new landscaping and cottage used by the family, is likely not exempt.
It is important to carefully consider whether you wish to place an inherited asset (such as a piece of land) in both spouses’ names. While this may be convenient for estate planning purposes (so that a surviving spouse inherits the property via right of survivorship), it may affect your ability to exclude the property from equal division in a divorce. When a married person acquires ownership of assets, their spouse typically acquires an automatic 50 percent interest in those assets. This is not the case with inherited property (due to its exempted status).
All considered, dealing with inherited property can create a bit of awkwardness for married beneficiaries. A spouse may wish to protect his or her ownership of an inherited asset by keeping it separate and apart from family use. However, doing so may create negative feelings and mistrust within the relationship. It may also cause the inheriting spouse and family members to miss out on the opportunity to improve inherited property and watch family members enjoying it. One possible solution is a marriage contract. For example, a marriage contract could state that an inherited home will remain the property of the inheriting spouse (exempt from division), regardless of whether the property is used or improved upon by the family. This would allow the parties to inhabit, renovate, and enjoy the home, while also protecting the inheriting spouse’s sole ownership. Depending on the parties’ wishes, the marriage contract could state that the non-inheriting spouse will receive half of the asset’s increase in value, after the date of inheritance. In such a case, it is a good idea to have the property professionally appraised upon inheritance, so there is a clear “baseline” value.
A marriage contract could also state that the inherited property will remain the asset of the inheriting spouse, even if it is placed in the parties’ joint names (that the non-inheriting party would sign a quit claim deed if the parties separate). In this way, the non-inheriting party could receive the property through right of survivorship if the inheriting party passes away – but the inheriting spouse’s ownership interest would remain protected while he or she is alive.
Overall, it is best to obtain legal advice before dealing with an inheritance or gift, to understand what options might work best in your individual case.
This article is for information only and is not intended to be legal advice. If you have any questions or would like further information, you should consult a lawyer.
