How to exclude gifts and inheritance

Sunshiaa Aiteeneyas

January 5, 2024

What are excluded properties? Section 4 of the Family Law Act states that property that a spouse owns on the valuation date does not form part of the spouse’s net family property if it is property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage. If you are wondering why this is important to you, let me explain.  

Net Family Property 

Generally, following a separation, each party is required to account for his/her assets and debts for the net family property calculation. This means that the spouse who has a lower net family property is entitled to one-half of the difference between the two net family properties. The Family Law Act states that the onus of proving a deduction under the definition of “net family property” or an exclusion under subsection (2) is on the person claiming it. 

Property Exclusion 

The Family Law Act creates a presumption regarding the ownership of property for married parties. Section 14 of the Family Law Act states that “the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants.” The party seeking to exclude property must rebut this presumption

Basically, it’s important to remember that excluded property that are not kept separate but co-mingled with family assets may lose its excluded status. This may occur if assets are deposited into an account jointly owned, repairs done to the matrimonial home, deposits paid into joint accounts as the contents can be deemed jointly owned for the benefit of both parties.  

Case Comparison 

Let’s jump into caselaw to understand how the court interprets this. In Belgiorgio v Belgirgio, the parties maintained a joint bank account through their marriage. When the husband received an inheritance from his father’s estate, he placed the funds in the joint bank account. The husband regretted his decision to deposit the funds in the joint account and sought to exclude the amount from the net family property. The court had to focus on the intentions when he deposited the money in the account which was jointly held by his wife. Income was pooled in this account, and expenses and purchases were paid from it, which characterized the funds from the account as family funds. Therefore, he failed to rebut the presumption under the Family Law Act. 

Now, let’s compare this to a recent Ontario Court of Appeal case of Cortina v Cortina, in which the outcome was different. The husband in this case was holding over $100,000 in his investment account, the money was gifted by the husband’s mother. The issue on appeal was whether they were properly excluded from the husband’s net family property. The wife argued that the funds were intended as a gift to both parties or in the alternative that the money, once deposited into the parties’ joint bank account, lost its character as a gift/inheritance. However, the Court of Appeal held that there was strong evidence to support the finding that the husband’s mother intended the money to go to the husband alone. The question was whether the exclusion could still apply because the money was co-mingled with the joint funds. The Court of Appeal accepted the trial court’s finding that there was sufficient evidence to rebut the presumption that the property held in the name of both spouses was intended to be joint. This could have been concluded differently by the court, possibly losing the character of exclusion had the husband left the money in the joint account and used it to pay debts or fund family assets.  

From comparing the two cases, it is clear whether an exclusion applies or not based on the facts of the case. To summarize, in the first case the husband co-mingled his inheritance in the account that was jointly held by his wife. Income was pooled in this account, and expenses and purchases were paid from it, which characterized the funds in the account as family. In the second case, the husband temporarily left the money in the parties’ joint account before transferring it to his investment account. The parties did not use the funds to pay for family debts or expenses or continue to pool funds in the account together. 

Be proactive and protect your assets. If you are still unsure, you have reached the right place. Contact our experienced family Lawyers in Toronto for expert guidance in your family law matter.