Divorce is a complex legal process involving untangling emotional and financial ties. If you received an inheritance during your marriage, you likely have questions regarding its status in a divorce settlement. This blog post explores inheritance and divorce in British Columbia, specifically focusing on how the commingling of inherited assets can impact their classification as separate or marital property.
Preserving Separate Property Rights: The Treatment of Inheritances During Divorce in BC
If you decide that a divorce is right for your situation, one of the things you may have to consider is how inheritances and divorce work. If you received an inheritance, you likely want to preserve that money or those assets for yourself.
Usually, when you receive an inheritance, that inheritance isn’t subject to equitable distribution. By law, inheritances aren’t marital property; instead it’s property that goes to a sole individual. There are some exceptions that you should know about, though. For instance, if you have placed the inheritance into a joint bank account, then you may have created a comingling of your inheritance. That means that it now may be treated as a marital asset and may not be protected from equitable distribution rules.
Laws specify how an inheritance received before marriage is treated, but usually, the inherited funds will be considered separate property as long as the funds are kept separate during the course of the marriage. For this reason, it’s wise to only withdraw certain amounts for your marriage from a separate account or to place only what you want to share into a joint banking account.
If you didn’t intend to share those funds but did comingle, it’s possible to still get that property back as separate property in some cases. If you can show that you didn’t intend to share the funds, then the court may rule in your favor. This is a complicated situation that your attorney may need to work with you on, since you will be forced to provide proof for this discrepancy. Our website has more on divorce and protecting your assets, so you can learn more about what to do in circumstances like these.
Inherited Assets and Divorce: What Gets Split and What Stays Yours
While the original inheritance amount remains yours, things get trickier regarding value growth. If that inheritance, say, a house you owned before marriage, increases in value during your relationship, that increase becomes family property and may be subject to division.
Here’s a breakdown:
- You inherit a house worth $900,000 before your spouse moves in.
- When you separate, the house value jumps to $1.2 million.
- The original $900,000 value remains yours.
- The $300,000 increase in value (equity) might be split 50/50 with your spouse.
When Excluded Property Becomes Marital Property: The BC Court of Appeal Weighs In
The BC Court of Appeal recently weighed in on an important question regarding excluded property (assets you owned before marriage or inheritances received during marriage) and gifts between spouses.
The court clarified that if you transfer ownership of your excluded property to your spouse’s name, it will likely be considered a gift. This implies that the property will no longer be considered “excluded” and will instead be subject to division between spouses
However, there’s a potential silver lining. The gifting spouse can present evidence demonstrating that the transfer wasn’t a gift but a financial arrangement made for practical reasons during the marriage. Examples include estate planning or facilitating mortgage approval.
If you can provide clear evidence that the transfer wasn’t intended as a gift, the court may decide to return the ownership of the asset to you.
Remember, navigating these situations can be complex. Consulting with a family lawyer is highly recommended for questions about excluded property or gifts during marriage.
Protecting Inheritance in Divorce
Even though some assets, like inheritances, are kept separate in a divorce, their value might be influenced by the growth of shared assets (like a house) during the marriage. This raises the question: how can individuals proactively protect their assets before and after marriage? If you possess assets you wish to safeguard, a prenuptial agreement may be a prudent course of action. This formal contract, drafted before marriage, allows you and your intended spouse to clearly outline how property – including inheritances – will be divided in the unfortunate event of a divorce. Is there a strong likelihood that your assets will appreciate in value over time? A prenuptial agreement becomes particularly valuable in this scenario. By establishing ownership rights upfront, you can mitigate the potential for your spouse to claim a share of the appreciation (increase in value) of your excluded property during the marriage.
Postnuptial Agreements: Addressing Assets After Marriage
Already married and harbor concerns about the status of your premarital assets or a potential inheritance? A postnuptial agreement can provide much-needed clarity. Functioning similarly to a prenup, this contract, drafted after marriage, allows you and your spouse to formally determine how assets will be distributed if your marriage dissolves.
Empowering Yourself with Legal Guidance
Prenuptial and postnuptial agreements offer valuable tools for securing your financial interests. If you are contemplating either option, consulting with a professional family law lawyer is essential. They can guide you through the process, ensure the agreement is legally sound, and tailor it to address your circumstances. Solutions Family Law remains committed to assisting you in navigating the intricacies of family law matters. Contact us today to schedule a consultation and explore how we can help you with prenuptial agreements, postnuptial agreements, and other legal considerations.
