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In Ontario, when a marriage ends, the spouses are entitled to a division of property accumulated during the marriage through equalizing net family property. The Family Law Act also outlines categories of excluded property that are not included in the calculation of net family property. This includes gifts or inheritances received by a spouse during the marriage. But sometimes an inheritance may be shared with the other spouse if the funds are comingled with family assets. Being able to trace excluded amounts between accounts is also essential.
Is Inheritance Excluded From Equalization if it is Both Spouses’ Names?
Section 4(2) of the Family Law Act (FLA) provides that property other than a matrimonial home that is “acquired by gift or inheritance from a third person after the date of marriage” and property into which a gift can be traced is excluded from the recipient party’s net family property.
In O’Connor v. O’Connor, the parties disagreed on whether the wife was entitled to exclude certain property that she inherited and received during the marriage from equalization. According to the husband’s calculations, he claimed that the wife owed him an equalization payment and that some of the wife’s inherited funds were comingled with family accounts and therefore were not entitled to be excluded. The wife admitted that she owed an equalization payment but claimed that it was substantially less than the amount her husband submitted. The wife received inheritance funds from both her aunt and mother. The parties also set up accounts on behalf of their children, to which funds from the wife’s mother’s estate were deposited. These accounts were originally set up from child tax credit payments and was the parties’ joint account. However, the judge accepted the parents set up the account for the benefit of their children. Also, the wife’s mother intended to provide an inheritance to her grandchildren for $10,000. The balance in the account represented that amount. Even though the account was not set up as a trust account and the parents remained joint owners of the account, the balance remaining on the date of separation was earmarked for the benefit of the children. It did not belong to the parents despite being listed as the owners. Consequently, these accounts could not form part of the net family property.
The parties also created a new account for the wife’s inheritance from her aunt. The account was in both parties’ names so that if something happened to the wife, the husband could manage the account. However, the husband did not use it; he never managed the account and did not deposit money into the account or use the funds. The question was whether this constituted property that could be excluded from equalization. While the wife controlled the account, it was listed as a joint account throughout the marriage, and the wife used the account on one occasion for family purposes. Under section 14 of the FLA, there is a presumption of a resulting trust when a spouse transfers a gratuitous property into joint names. That was the case here. However, the transfer recipient can rebut that presumption by demonstrating that the funds were intended as a gift, in which case the recipient would be found to have a 50% ownership interest in the property when the account was placed into their joint names.
In Pecore v. Pecore, Justice Rothstein explained that in the case of gratuitous transfers of property, the presumptions “provide a guide for courts in resolving disputes over transfers where the evidence as to the transferor’s intent in making the transfer is unavailable.” In this instance, the court accepted that the wife’s intention was not to make a gift of the account but to protect the inheritance by ensuring a right of survivorship. And ensuring a right of survivorship did not mean there was an intention to provide a gift of the account. The fact that the husband did not include this account on his mortgage application was an indication of the parties’ intention concerning the account. For the husband to show there was a gift of the funds in the account he had to provide evidence to support that claim, but he could not offer evidence to rebut the presumption. In Rogers v. Rogers, inheritance money was comingled with family funds; on that basis, the court did not permit the funds to be excluded. However, there was no commingling of the inheritance with other family money. The wife used some funds to pay for a family vacation to Disney World. The husband argued that the property could not be excluded. The judge disagreed. The fact that some funds were spent on the family vacation did not mean that the entire inheritance lost its excluded status. It only diminished the balance that remained in the account on the date of separation.
Claimant Has the Onus of Proving an Exclusion
In Singh v. Singh, the parties disagreed on calculating their respective net family properties. The respondent claimed that $894,000 in funds could be traced to gifts made to him by his father. Those funds were now in seven accounts, four of which belonged to the parties jointly, and three were held by him solely. He claimed that the amount should be excluded from equalization. Under section 4(3) of the FLA, the person claiming an exclusion has the onus of proving the property should be excluded. In doing so, the respondent relied on two letters he claimed was provided by his father that directed that the gifted funds should not be shared with the applicant. In contrast, the applicant disputed the authenticity of the letters.
The respondent’s father was deceased, and all the evidence about his intentions came from the respondent himself. Also, the respondent relied on copies of the letters, not the originals, which he claimed were lost many years ago. Yet, the respondent was very vague about how electronic copies of the letters were saved on his computer. Justice Pinto was also concerned that the respondent did not produce the letters at the start of the litigation and waited months to disclose the information to the applicant’s counsel. It was concerning that he did not reference any gifts during the marriage from his father in earlier pleadings or in his financial statement when he was specifically thinking of any exclusions and gifts. For these reasons, there was serious doubt about the authenticity of the gift letters.
Gap in Tracing Inheritance Funds Causes Loss of Excluded Status
The applicant pointed out that some of the funds the respondent wanted to exclude were in jointly held accounts. The respondent had declared that the funds in the account were jointly owned, but later at trial he argued they were not. For the judge, the respondent could not have it both ways, finding that at the material time, he intended to treat the funds as a family investment. The judge also found that the gifts the respondent’s father made could not be traced to the $894,000 the respondent sought to exclude. In Townshend v. Townshend, the court found that money in joint accounts from a gift or inheritance could still be excluded with appropriate evidence. But here, even if the respondent’s father made the gifts many years ago, there was now too much of an evidentiary gap to trace the gift to the amounts the respondent wanted to exclude. As the respondent could not trace the gifted funds into any particular accounts or assets, he could not meet the onus and demonstrate the tracing of the funds.
Recipient Must Be Able To Clearly Document Inherited Funds
The party claiming an asset should be excluded from the net family property has the onus of proving the exclusion. If the party fails to establish that the property should be excluded, it will be shared with the other spouse. But funds held in joint accounts can still be excluded if the amount was clearly gifted and maintained separately from additional family funds. But the party will need to be able to trace gifted amounts between accounts to exclude them.
Windsor Family Lawyers Protecting Your Heritance During Divorce
The family lawyers at Johnson Miller Family Lawyers in Windsor have focused exclusively on family law matters for clients in the Windsor and Essex County community for over 25 years. We help clients navigate family conflicts and present customized financial solutions tailored to their situation. To discuss your matter further or arrange a consultation, please contact the firm at 519-973-1500 or by visiting us online.
