If you are separating from your spouse, you may be thinking about how to divide joint assets like real estate, vehicles, and bank accounts. But what about inheritances? Clients commonly ask British Columbia divorce lawyers whether one spouse is entitled to the other’s inheritance on separation.
In general, inheritances either partner receives during the marriage are excluded from the division of property in a divorce. However, there are certain legal complexities and financial requirements that can make excluded assets divisible.
Here is more about what British Columbia divorce lawyers would like you to know about inheritances and divorce.
Division of Family Property
In a British Columbia divorce, courts typically divide family property equally between spouses. Family property consists of anything either or both spouses owned before the separation (unless explicitly excluded). It may also extend to property accumulated after the separation, if family property was used to acquire it.
The following assets are common examples of family property:
- Real estate
- Bank accounts
- Insurance policies
- Bonds, stocks, and other investments
- Pension plans
- Interests in a business
Excluded Property Types
Excluded property is not split upon divorce. The list of excluded property in British Columbia includes the following:
- Anything one spouse owned before the relationship
- Inheritances one spouse receives during the relationship, in general
- Gifts one spouse receives from a third party
- Certain types of damage or settlement awards (such as in personal injury cases)
However, there is one important clarification to this rule. If any excluded property is worth more when you divorce than it was when you married, both spouses are entitled to half of the increase in value. That is, equity gained during the time the couple is together is generally split between the divorcing couple.
When a Spouse May Claim Your Inheritance
The law generally treats inheritances as excluded property in a divorce. However, there are exceptions that could substantially affect the division of property in your divorce order.
Increase in Value
Because each spouse is entitled to half of the value of the increase in worth of the excluded property, you will generally include the value acquired during the marriage in your net family property. While the court will not split the pre-marriage value of your inheritance, it will split the increase in value. For example, if an inherited home was worth half a million dollars when you were married but is now worth two million – the difference would need to be split. Additionally, if there is a marriage contract (akin to a prenuptial agreement) this may influence these determinations.
Commingling Assets
To exclude your inheritance from the equal division of assets, you must prove that it still exists when you divorce. The ideal way to do that is by keeping inherited cash, stocks or other valuable items separate so that your inheritance remains easily traceable.
The difference between family property and excluded property becomes muddied if you mix funds from your inheritance with marital funds. Also, if your inheritance gets spent on expenses such as vacations or bills, you are unlikely to recoup the value of those spent funds.
Buying Property with Inheritance Money
You do not have to keep your inheritance in the form in which you received it. You can buy stocks, vacation homes, or other property without losing your exclusion. However, tracing can be difficult when you mix inherited funds and other family funds to make purchases. A marriage agreement or other advice from an experienced divorce lawyer can help you ensure your excluded inheritance remains your excluded property in the event of divorce.
Divorce and Family Legal Services in British Columbia
Complicated questions about inheritances often require experienced divorce counsel in British Columbia. For more information, call (604) 560-8285 to reach the skilled British Columbia divorce lawyers at Pier Law & Mediation.
