In Canada, a common question during a divorce is when does an inheritance become marital property? Generally, inheritances are considered “excluded property,” meaning they are not subject to the typical 50/50 split. However, this protected status can be lost through a process called “commingling.” If you deposit inherited funds into a joint bank account, use them to pay down the mortgage on a matrimonial home, or use them for shared family expenses, they may legally transform into marital property. In Saskatchewan and other provinces, while the original value of an inheritance is often exempt, any increase in its value during the marriage is frequently considered a family asset that must be shared. To protect your inheritance, it is vital to keep the funds in a separate account in your name only and maintain a clear paper trail of their use.
The Hidden Risk to Your Family Legacy
Your late grandmother leaves you $100,000. You want to be a “team player,” so you put that money into the joint savings account you share with your spouse. Two years later, you decide to separate.
Suddenly, that $100,000 is on the table to be split right down the middle. Why? Because you inadvertently “gifted” half of it to your spouse by mixing it with your family finances.
Understanding when an inheritance becomes marital property is not just about greed; it is about respecting the intentions of those who passed their hard-earned wealth to you. In the world of Canadian divorce, a single bank transfer can be the difference between keeping your legacy and losing half of it.
Is Inheritance Considered Marital Property?
The short answer is: No, but it can become one. Under Canadian inheritance law, assets received through a will or as a gift from a third party are typically considered “excluded” from the net family property.
This means if you walk into a marriage with $50,000 from an uncle, or receive it while married, that specific $50,000 belongs to you.
The catch? You must be able to “trace” it. If that money disappears into a shared pot of cash used for groceries, gas, and mortgage payments, the court may rule that it is no longer traceable and has become part of the marital pool.
Inheritance Divorce Canada: The Rules of the Game
Every province has its own version of the Family Property Act, but the core principles remain similar across the country.
The Exemption Rule
Most provinces allow you to subtract the value of an inheritance from your total assets before the final split.
- If you inherited it before marriage: Only the increase in value during the marriage is usually shared.
- If you inherited it during marriage: The full amount is typically excluded, provided it was kept separate.
The “Commingling” Exception
This is the most dangerous trap for heirs. When does an inheritance become marital property? It happens the moment you “commingle” or mix it.
| Action | Likely Status | Why? |
| Keep in a separate account | Excluded | Clear proof of sole ownership. |
| Deposit in a joint account | Marital | Presumed gift to the marriage. |
| Pay off the joint mortgage | Marital | The family home has special status. |
| Invest in a joint business | Marital | Funds are used for a shared venture. |
How to Protect Inheritance from Spouse in Canada
If you are expecting a windfall or have recently received one, you need a proactive plan. You shouldn’t wait for a “rough patch” in your marriage to start protecting your assets, at that point, it might be too late.
1. Open a Sole-Name Account
The simplest way to protect your money is to keep it in an account in your name only. Never use this account for family bills. If you want to use some of the money for a family vacation, transfer only that specific amount to your joint account.
2. Document Everything
Keep a folder with:
- A copy of the Will or estate documents.
- The bank statement shows the initial deposit into your sole account.
- Annual statements showing the balance over time.
3. Be Wary of the Matrimonial Home
In Canada, the “family home” is treated differently from any other asset. In many provinces (like Ontario and Saskatchewan), if you use inheritance money to pay down the mortgage on the house you both live in, you lose the right to exclude that money. The home is almost always split 50/50, regardless of who made the down payment.
The Role of Marriage Contracts (Prenups and Postnups)
A marriage contract is the only way to ensure that even the increase in value of an inheritance stays with you. Without one, you will likely have to share the growth (interest or capital gains) with your spouse.
A legal agreement is the “gold standard” for protection.
- Prenuptial Agreement: Signed before you say “I do.” It can explicitly state that any future inheritances will never be part of the marital property.
- Postnuptial Agreement: Signed after you are already married. This is useful if you suddenly receive an inheritance and want to ensure both spouses are on the same page about it staying separate.
Inheritance Law Canada: Common-Law vs. Married Spouses
The rules for common-law couples are significantly different. In Saskatchewan, common-law spouses have many of the same rights as married couples after living together for two years. However, in provinces like Ontario, common-law partners do not have a statutory right to an “equalization” of property.
- Married Spouses: Have an automatic right to share in the “increase in value” of marital assets.
- Common-Law Spouses: Must often rely on a “constructive trust” claim, where they have to prove they contributed to the asset’s value to get a share.
Safeguarding Your Family’s Wealth
Knowing when an inheritance becomes marital property is the key to financial peace of mind. While it feels uncomfortable to talk about “protecting assets” from someone you love, it is a standard part of responsible estate planning.
By keeping your inherited funds separate and using legal agreements to clarify your intentions, you ensure that your family’s legacy stays exactly where it was intended to go.
Legal rules can be tricky, and a single mistake can lead to a “commingling” disaster. Just as you must be careful with your inheritance, you must be careful with your legal status in the eyes of the government.
For example, many people are surprised to learn that their tax status can lead to penalties if they don’t update it. Understanding what the Penalty for Filing Single in Common-law Canada is vital for anyone who has transitioned from a relationship back to a single life।
Need help tracing your inheritance or drafting a marriage contract? Contact a Moose Jaw Divorce Lawyer at (306) 992-9014 to protect what is rightfully yours.
FAQ: Your Inheritance and Divorce Questions
Is a spouse entitled to inheritance money in Canada?
Generally, no. A spouse is not entitled to the principal amount of an inheritance received by the other partner, provided the money was kept in a separate account and never used for joint family purposes.
Does inheritance get split in divorce?
Only if it was commingled. If the inherited funds were used to purchase a joint asset (such as a car or a cottage) or put into the family home, they will likely be split. If kept separate, only the growth in value may be subject to division.
Is a common law spouse entitled to inheritance?
Usually, no. Unless a common-law spouse is specifically named in a Will, they have no automatic right to inherit from a deceased partner in most provinces. In a separation, they also have much harder time claiming a share of their partner’s inheritance than a married spouse does.
What happens if I use my inheritance to start a business?
If you are the sole owner of the business and used only inherited funds, the business may be excluded. However, if your spouse works in the business or if you use marital income to keep it running, your spouse will likely gain a claim to its value.
