Separating Finances During a Divorce: How to Protect Family Inheritances

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The average Canadian receives just under $100,000 from inheritances. That’s a good chunk of money that can go towards renovating the marital home or paying off debts. Depending on how the inheritance was used during the marriage, couples may disagree on how the asset should be divided during the divorce. Those who inherited money or assets may be at risk of losing a portion of it to their ex-spouse.

Identifying Whether an Inheritance is a Personal Asset or a Marital Asset

Dividing family assets during a divorce can lead to a lot of tension and stress, especially if the divorce is contentious. Figuring out whether an inheritance is a marital asset or a personal asset is particularly tricky.

According to the Matrimonial Property Act, a matrimonial asset is any property acquired by either or both spouses before or during their marriage. Inheritances are an exempted unless they were used for the benefit of the children or both spouses. Personal property is an inheritance that was solely used for the benefit of the individual.

A Thin Line Between Shared Resource versus Individual Asset

There’s only a thin line that separates a marital asset from a personal property. Basically, a lawyer can argue that an inheritance has transformed from being personal property to a marital asset if it was used to benefit both spouses. For example, the inheritance is considered to have benefited both spouses if it was used to:

  • Pay off debts accrued by both spouses
  • Renovate and upgrade the marital home
  • Pay off regular bills, like hydro bills or electricity bill
  • Pay off joint expenses, and was placed in a joint account

In these situations, the inheritance may need to be divided evenly and distributed to both partners. Liquid funds may go towards paying off marital debts to simplify the divorce proceedings.

Getting into Lengthy Legal Fights Over Inheritances

Divorces often bring out the worst in people. If the divorce was contentious and if emotions run high, it’s not unusual for spouses to fight over inheritances. This can lead to lengthy and expensive legal battles. Those who received an inheritance are required to prove that the inheritance is personal property.

The spouse requesting the inheritance isn’t required to do much. Their lawyers can simply file a request for the inheritance to be considered as a marital asset. Disagreements over the inheritance can lengthen the divorce proceedings.

Deciding Whether the Fight Is Worth It

Understanding the financial and legal implications is crucial in determining whether fighting over the inheritance is worth it. It’s vital to ascertain what the asset is. It might be financial funds or a prized family heirloom.

Calculate the extra cost of fighting over the inheritance. At times, a lawyer may recommend not putting up a fight if the inheritance is relatively small or if the legal battle will become too complicated. This is especially true if the inheritance was used to benefit both spouses.

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Protecting Inheritances from Spouses

Those who have decided that it’s worth putting up a fight will need documentation proving:

  • From whom the inheritance came from
  • How the inheritance was used
  • Which personal accounts the inheritance as placed in
  • The title of the inheritances
  • The trust where the inheritance came from

Pre-nuptial agreements that have already addressed how inheritances will be distributed is also important. These documents can prove whether there are any agreements that need to be honoured.

Gathering All Documents and Discuss Concerns with a Lawyer

The key to putting up a good fight in court and to increasing one’s risk of successfully protecting their inheritance is to get all the necessary documents. To build a strong case, provide all necessary documents to the lawyers. They’ll figure out how to best protect the inheritances from the divorce, and how to do so without further complicating the divorce proceedings. Contact Fine & Associates today for more information on protecting your inheritance.