Are Inheritances Divisible in Divorce?
Property division upon divorce can be tricky. Much depends on what arrangements were made during cohabitation and marriage. Can an inheritance remain excluded property if it is shared during the marriage or invested in family assets?
Inheritances are generally considered to be excluded property, irrespective of whether they are received before or after the relationship. However, any increase in the value of the inheritances is deemed to be family property and therefore split equally.
An inheritance must be received by a beneficiary before it can be excluded property. As a result, the inheritance exclusion would apply as of the date a spouse receives the inheritance.
Any time you are using inherited funds to purchase other investments or property, it is imperative that you keep documentation proving where the inherited funds came from. Always remember, the spouse receiving the inheritance has the burden of establishing that the inheritance is not a family asset.
In Shih v. Shih, 2017 BCCA 37, it was established that the standard of proof for demonstrating excluded property is proof on a balance of probabilities, based on clear and cogent evidence rather than on precision or mathematical certainty. If documentary evidence is not available, the party bearing the onus must testify as to their recollection of the transaction in dispute.
In Asselin v. Roy, 2013 BCSC 1681, the court had to consider whether contribution of inherited funds towards family property could result in an exclusion. It was held that where funds are used for improvements which were demonstrated to enhance the value of the property, the enhanced value would be excluded property. In this case, no evidence was presented which indicated that the improvements to the home resulted in an appreciation to the value of the property.
Where an inheritance is intended to benefit both spouses and is used to pay down the mortgage on the family home, it may not give rise to an exclusion. Funds which are also advanced by a spouse’s parents and used to pay family debt or create equity in family property, if found to be an advance on an inheritance, may constitute excluded property and may be traced.
It is always a good idea to keep inherited funds or property separate from family property.