Do I have to share my inheritance after divorce?

By Colin Ferguson, Vancouver Family Lawyer

Due to the changing demographics in British Columbia, inheritances are becoming a more frequent issue in family law cases. This is especially so in jurisdictions like Vancouver and Victoria where an inheritance can be substantial as a result of high real estate prices.

An inheritance is not regular family property to be divided 50-50 in the event of separation or divorce. An inheritance is considered excluded property under the Family Law Act which means that it is not divided on a 50-50 basis in a family law claim for property division. Section 85 of the Family Law Act outlines the types of property that is excluded from the normal 50-50 division, and states:

85  (1)The following is excluded from family property:
(a)property acquired by a spouse before the relationship between the spouses began;
(b)inheritances to a spouse;
(b.1)gifts to a spouse from a third party;
(c)a settlement or an award of damages to a spouse as compensation for injury or loss, unless the settlement or award represents compensation for
(i)loss to both spouses, or
(ii)lost income of a spouse;
(d)money paid or payable under an insurance policy, other than a policy respecting property, except any portion that represents compensation for
(i)loss to both spouses, or
(ii)lost income of a spouse;
(e)property referred to in any of paragraphs (a) to (d) that is held in trust for the benefit of a spouse;
(f)a spouse's beneficial interest in property held in a discretionary trust
(i)to which the spouse did not contribute, and
(ii)that is settled by a person other than the spouse;
(g)property derived from property or the disposition of property referred to in any of paragraphs (a) to (f).

An inheritance therefore is excluded property if it is received before separation, after separation or before the date of the cohabitation of the spouses. However, there are some issues that arise in a family law claim or divorce action which can create an entitlement to part of the inheritance.

Increase in Value Of Inheritance
Even though an inheritance is excluded property, any increase in value of the inheritance is considered family property under the Family Law Act. For example, if you inherited a property worth $500,000 and at the time of your trial or mediation, your property is worth $600,000, then the increase of $100,000 is family property to be divided evenly.

Sold or Invested Inheritance
If you sold your inheritance and took the money and invested it in another asset it is absolutely crucial that you keep hard copy documentation of this transaction. The investment is still considered excluded property, and the increase in value is still shared on a 50-50 basis. However, if you do not have documentation and cannot trace the investment back to the inheritance then you will lose your claim that the initial value of the inheritance should be excluded property and not divided 50-50 after separation or divorce.

Protecting Yourself
The banks only keep records for 7 years and anything beyond that can be very difficult to obtain in a family law case. Keeping track of your taxes, bank fees, mortgages, investments and any other documentation related to tracing the inheritance back to its origin is critical to your family law or divorce case and protecting the asset. Moreover, it is also possible to enter into a cohabitation or prenuptial agreement which clearly outlines the origin of the inheritance and also protects any increase in value against an equal division in the event of separation.

The lawyers at Crossroads Law are experienced with protecting family law assets and tracing the origin of excluded property. If you have questions about inheritances or separate property, the Vancouver divorce lawyers at Crossroads Law can help. We also provide family law mediation and collaborative law services.