If you received an inheritance during your marriage or relationship, you may be wondering whether your spouse is entitled to a share of it if you separate.
The good news is that, in British Columbia, inheritances are generally considered excluded property under s.85 of the Family Law Act. This means that, in most circumstances, you are entitled to keep the inheritance rather than divide it equally with your spouse.
However, under s.84 of the Family Law Act, the amount by which the value of excluded property has increased since the later of the date of either the relationship between the spouses began or the excluded property was acquired, is family property which may be subject to equal division.
Understanding the rules around excluded property can help you protect your financial interests and avoid costly disputes during separation.
Is an inheritance considered excluded property in BC?
Generally, yes. Under s.85 of BC's Family Law Act, an inheritance received by one spouse is considered excluded property. This applies whether you received the inheritance before or during your marriage or marriage-like relationship.
For example, if your parents left you $200,000 during your marriage, that inheritance would generally remain your excluded property. Your spouse would not automatically be entitled to half simply because you received it while you were together.
The same principle applies to other inherited assets, including investment accounts, real estate, shares in a company and other property received through an estate.
However, it is important to understand that although the original inheritance is generally protected, any increase in its value during your relationship may be treated differently.
Does my spouse get half of the increase in value of my inheritance?
Potentially, yes. Under s.84(2)(g) of the Family Law Act, an increase in the value of excluded property is considered family property.
This means that although you may be entitled to keep the original value of your inheritance, the increase in its value during your relationship is generally shared equally between you and your spouse.
For example, say you inherited $200,000 from your parents during your marriage and invested the money. By the time you separate, the investment portfolio is worth $300,000.
In this situation:
The original $200,000 inheritance would generally remain your excluded property.
The additional $100,000 in growth would generally be considered family property.
Your spouse may be entitled to $50,000, representing half of the increase in value.
The calculation can become more complicated depending on when you received the inheritance, how it was invested and whether additional money was contributed to the investment.
It is also important to distinguish between the original inheritance and any subsequent increase in value. They are not necessarily treated the same way under BC family law.
What happens if I used my inheritance to buy a family home?
This is one of the most common questions that arises during separation. Suppose you inherited $250,000 from your parents and used that money as a down payment on a home purchased with your spouse. Does your spouse automatically get half of the $250,000? Not necessarily.
Under s.85(1)(g) of the Family Law Act, property derived from excluded property can also retain its excluded status. This means that an inheritance may remain excluded property even when it is used to purchase another asset.
For example, if you inherited $250,000 and used it as a down payment on a $1 million family home, you may be able to claim the $250,000 as excluded property when the home is divided.
The remaining equity in the home, together with any increase in the value attributable to the excluded property, must be assessed under the applicable property division rules.
It is important to remember that the family home does not automatically become entirely excluded property simply because one spouse contributed an inheritance toward its purchase.
The source of the funds, the amount contributed, the property's value and any subsequent increase in value must all be considered.
What if I used my inheritance to pay down the mortgage?
Using an inheritance to pay down a mortgage does not necessarily mean that you have lost your right to claim excluded property.
For example, imagine that you inherited $150,000 and used the money to make a substantial lump-sum payment toward the mortgage on your family home.
You may be able to trace that contribution back to your inheritance and claim it as excluded property.
However, determining how much of the home's equity is excluded and how much is family property can require a detailed financial analysis.
It is particularly important to keep records showing where the inheritance came from and how it was applied to the mortgage.
What if I deposited my inheritance into a joint bank account?
Depositing an inheritance into a joint bank account does not automatically mean that you have lost your right to claim it as excluded property.
S.85(3) of the Family Law Act provides that excluded property does not lose its excluded status simply because legal or beneficial ownership is transferred to the other spouse.
However, mixing inherited funds with regular household income, joint savings or other family money can make it significantly more difficult to establish which funds originated from the inheritance.
For example, if you deposited $200,000 into a joint account and subsequently used the account to pay household expenses, make mortgage payments and purchase investments, it may be difficult to establish how much of the original inheritance remains identifiable.
The important issue is whether you can demonstrate and trace the original inheritance into the property you are claiming as excluded property.
This is why maintaining separate accounts and keeping clear financial records can be important when receiving an inheritance during a relationship.
What if I transferred my inheritance into my spouse's name?
Transferring an inheritance into your spouse's name does not automatically eliminate its excluded property status.
Under s.85(3) of the Family Law Act, an inheritance can remain excluded property despite a transfer of legal or beneficial ownership between spouses.
However, this does not mean that every transfer is without legal consequences.
The circumstances surrounding the transfer, the parties' intentions, any agreements between them and the ability to trace the original inheritance may all become relevant.
If you intend to use an inheritance to purchase property jointly with your spouse, it is worth obtaining legal advice before completing the transaction.
Can my spouse claim my inheritance if they contributed to maintaining or improving the property?
In most circumstances, an inheritance remains excluded property. However, there are limited situations in which a court may order the division of excluded property.
S.96 of the Family Law Act allows the Supreme Court to divide excluded property in specific circumstances, including where it would be significantly unfair not to do so after considering the length of the relationship and certain other factors.
These factors include whether one spouse made direct contributions to the preservation, maintenance, improvement, operation or management of the excluded property.
For example, if you inherited a property and your spouse subsequently made substantial direct contributions toward maintaining or improving it over many years, those contributions may become relevant to a claim under s.96.
This does not mean that simply helping with household expenses or contributing to the relationship automatically gives your spouse an interest in your inheritance.
The court must consider the statutory requirements and the specific circumstances of the relationship.
What if I spent my inheritance on family expenses?
This is another important distinction. If you receive an inheritance and use the money to pay for family vacations, household expenses, everyday living costs or other expenses during your relationship, the money may simply have been spent.
Unlike an inheritance used to purchase an identifiable asset, money that has been spent may no longer be available to claim as excluded property.
There is generally no automatic entitlement to reimbursement simply because one spouse used their inheritance to support the family during the relationship.
The circumstances may be relevant to other aspects of the financial separation, but the original inheritance does not necessarily create a repayment obligation for the other spouse.
How do I prove that my inheritance is excluded property?
Under s.85(2) of the Family Law Act, the spouse claiming that property is excluded has the responsibility of demonstrating that it qualifies as excluded property.
In practical terms, this means that you should be able to establish where the inheritance came from and what happened to the funds after you received them.
Useful documentation may include:
A copy of the will or estate documents identifying your inheritance.
Estate distribution statements confirming the amount received.
Bank statements showing the deposit of the inheritance.
Investment statements showing how the funds were invested.
Purchase and sale documents for assets acquired using the inheritance.
Mortgage statements showing any payments made using inherited funds.
Financial records showing transfers between accounts.
The more clearly you can trace the inheritance from the date you received it to the property you currently own, the easier it may be to establish your excluded property claim.
If the inheritance has been transferred between multiple accounts, invested in different assets or used toward a family home, a lawyer may need to review the financial records to determine what portion can still be claimed as excluded property.
Can I protect my inheritance before separating?
Yes. There are practical steps you can take to protect your inheritance and reduce the likelihood of a dispute if your relationship breaks down.
First, keep inherited funds separate from your regular income and joint household accounts wherever possible.
Second, maintain copies of all documents showing the source and movement of inherited funds. This includes estate documents, bank statements, investment records and purchase documents.
Third, consider obtaining a marriage agreement or cohabitation agreement that clearly addresses how an inheritance and any assets acquired with inherited funds will be treated if the relationship ends.
A properly prepared agreement can provide greater certainty about how property will be divided and may help avoid expensive litigation.
Importantly, if you have already received an inheritance and used it to purchase property jointly with your spouse, it is not necessarily too late to obtain advice about protecting your financial interests.
Frequently Asked Questions About Inheritance and Separation in BC
Is my inheritance protected if I received it during my marriage?
Generally, yes. Under s.85 of the Family Law Act, inheritances received by one spouse are excluded property, even if received during the marriage. However, any increase in value during the relationship is generally family property.
Does my spouse get half of an inheritance if we divorce in BC?
Generally, no. Your spouse is not automatically entitled to half of the original inheritance. However, your spouse may have a claim to half of the increase in value of the inherited property during the relationship.
Is an inheritance protected if I put it into a joint bank account?
Potentially. An inheritance does not automatically lose its excluded status because it is deposited into a joint account. However, you must be able to demonstrate and trace the inherited funds.
If I use my inheritance to buy a house with my spouse, do I lose it?
Not necessarily. The amount contributed from your inheritance may remain excluded property, even if the home is jointly owned. However, the home's remaining equity and any increase in value must be assessed separately.
Can my spouse claim my inheritance if we have been married for a long time?
In limited circumstances, yes. S.96 of the Family Law Act allows a court to divide excluded property if the statutory requirements are met, including where it would be significantly unfair not to do so after considering the length of the relationship and other specified factors.
Do common-law couples have the same inheritance protections in BC?
Generally, yes. Under BC's Family Law Act, couples who have lived together in a marriage-like relationship for at least two years are generally subject to the same property division rules as married spouses. Different rules may apply to relationships that do not meet the definition of spouse under the Act.
Speak With a Vancouver Family Lawyer About Protecting Your Inheritance
Inheritance and excluded property claims can become complicated, particularly when inherited funds have been used to purchase a family home, pay down a mortgage or acquire investments during a relationship.
At Illuma Family Law, we understand that your financial contributions and family circumstances are unique. Our Vancouver family lawyers assist clients with separation, divorce, property division and excluded property claims.
Whether you are preparing for separation or already navigating a property division dispute, obtaining legal advice early can help you understand your rights, protect your financial interests and make informed decisions about your future.
Contact Illuma Family Law to arrange a consultation with one of our Vancouver family lawyers.
