During a divorce, couples often argue over whether an inheritance received by one spouse is to be included in the assets and property to be divided.
As a rule, inheritances or gifts received by one spouse are excluded from the property division calculation used when spouses separate and divorce. Be aware that the inheritance or gift must not be treated as matrimonial property or placed into a joint account, as this will create complex accounting issues in your joint finances which will be difficult to unravel to prove the ownership of the inheritance or gift.
At the time of the divorce, the inheritance or gift must still be in existence, whether this is in the form of a physical object, or non-tangible property such as stocks and shares.
Upon receipt of inheritance or a gift, unless a spouse wishes for it to form part of the matrimonial property, a spouse should keep this separate from their joint account with their spouse and not place or invest the gift within the matrimonial home.
The matrimonial home is treated very differently under the Family Law Act. The matrimonial home will always be viewed as mutual property unless a valid marriage contract specifies otherwise. As a result, if you choose to invest an inheritance or gift in renovations to the matrimonial home, as part of a payment towards a mortgage, or as a deposit for your home, the funds will become matrimonial property and will form part of the assets for division.
Value accrued on an inheritance or a gift throughout the marriage
Additional value which has accrued to the inheritance or gift throughout the period of marriage will also be excluded from the division of property. An example would be if a prized vase was gifted at a value of $20,000 and its value on the date of separation was $40,000, the value at the date of separation (the $40,000) will be excluded from the assets to be divided.
Any inheritance or a gift of money should not be placed into a joint bank account unless you are happy for it to be considered as matrimonial property. Under Section 14 of the Family Law Act, the Court will make a presumption that you intended to gift half of the inheritance or gift to your spouse, and you would only be able to exclude one half of the value from the property division.
Using an inheritance or gift as partial payment to purchase an asset
Spouses often use an inheritance to purchase assets, using the entirety of the inheritance and adding additional funds. In this circumstance, you would be entitled to exclude the value of the inheritance if you were able to trace the portion paid for by the inheritance or gift. An example would be if you inherited $50,000 and used this to purchase a piece of artwork that cost $60,000 and the value of the artwork has increased to $100,000 at the date of separation. You can exclude the percentage of the $100,000 that can be traced back to the $50,000, so in this case just over $83,000 of the $100,000 asset would be excluded.
In short, inheritances or gifts to one spouse are exempt from the division of property calculation upon separation, unless the inheritance or gift has been amalgamated into the matrimonial home or other joint assets.
If you have any questions regarding the above or require legal representation in respect to family law, division of property, gift law, or separation and divorce, please contact us for an initial consultation