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My name is Anna Troitschanski and I am an associate with the Feldstein Family Law Group.

You have just learned that you have been left some money in the Will of a friend or loved one who has passed away. What to do with the money? Pay down the mortgage? Buy a new car? Take the family on vacation? Put it away for a rainy day?

These are all valid options.

Today, I would like to talk to you about inheritances and how they are treated upon separation.

Married people who have inherited money during their marriage and are now meeting with me for a consultation about their separation quickly realize that paying off the mortgage using the $50,000.00 inherited upon the death of a loved one was not the best idea.

The main reason is – they now have to share the inheritance with their spouse. If they had put the money in an RRSP and left it there, that money would not have been included in calculating the equalization payment.

Why is this so? TheFamily Law Act provides special treatment for inheritances. Namely, the value of property that a spouse receives by way of an inheritance that a person still owns on the valuation date (usually the date they separated) does not form part of their net family property (in layman’s terms, what they are worth).

So, for the person who took the $50,000.00 they inherited and invested in RRSPs, the money is excluded. For the person who put the money into a joint bank account with their spouse, only 50% of any money that can be traced back to the inheritance is excluded. Spend it on a family vacation or paying off bills and there is no exclusion. Once you’ve spent it this way, the money is gone. Period. Any time that inherited funds are used towards the matrimonial home then the monies will not be excluded and the inheritance will be lost.

Another common problem is proving that the asset that exists on the valuation date can be traced back to the actual inheritance. Financial disclosure can be a challenge regardless of the situation. Now add to it the issue of having to show that the $50,000.00 you inherited 10 years ago can be traced to an RRSP that you owned when you separated.

Most people, when they inherit money do not think “how do I keep this money separate from the family’s assets in the event my spouse and I separate?” If they did, they would know to keep the funds in a separate account, not mix other funds from other sources and keep copies of bank statements. You don’t have to be pessimistic about the possibility of your relationship breaking down, but you should be prudent with large sums of money, like inheritances.

For more information about inheritances and property division, please visit our website. If you need legal advice about your own situation, please contact us at 905-581-7222 to schedule an initial consultation.