What happens to inheritance money in a divorce?
Provided that the inheritance money is received during marriage, under Ontario family law legislation it is automatically considered excluded property when it comes to calculating and dividing matrimonial property upon your separation or divorce.
However – and this is important – what you choose to do with the inherited money while married may eliminate the exclusion. For example, if you use the money towards a matrimonial home, you put the money in a joint bank account (rather than one solely in your own name), or you purchase new property in both your names, then you lose the benefit of that exclusion. In these cases the court will presume that you intend to give half of the inherited money to your spouse, and you will be left with only half the inheritance amount as a valid exclusion if you later decide to separate.
In contrast, if you use the inherited money to buy yourself a specific item or property (for example a fancy watch or sportscar) and it can be traced back to the original gift, then its value at the time you separate or divorce can usually be excluded at that time.
Finally, if you received an inheritance prior to getting married, then its value must be included in your Net Family Property as one of the items that you brought into the marriage, just like any other asset.