If you have been planning to bequest funds or property through an inheritance and want to protect those funds from a potential future divorce, British Columbia’s new Family Law Act may help put your mind at ease. Likewise, if you have been or expect to receive an inheritance and you want to protect it from current or future division as a result of a divorce or “common law” separation, this is now easier for you to do.
Inheritances are now amongst the types of property that will be found to be excluded from family property upon the breakdown of a marriage or marriage-like relationship IF the funds or property bequeathed remain traceable.
In summary, the Family Law Act presumes that all property, including cash and financial accounts, held by either spouse is family property that will be divided equally after separation. However, this is just the starting point. The FLA also provides that certain types of property, including inheritances, will be excluded from the pool of family property if enough evidence is put forward to prove that property should not be included in the pool of family property.
To protect an inheritance, the recipient will need to be able to provide evidence of its source, its character and value, the date you received it and how you used it. Copies of the estate documents and other records tracing its use are desirable.
It is important to note that the use of your inheritance during the marriage or marriage-like relationship may also be relevant. For example, if funds from an inheritance are intermingled with the family assets, it may become more difficult to argue the inheritance should be excluded. Under the old Family Relations Act and the leading British Columbia Court of Appeal case of 1981, Godding v. Godding, the significance of an inheritance diminished the longer a marriage subsisted and the funds were often divided equally as a result. Based on the 2013 British Columbia Supreme Court decision in Addison v. Roy, in which the Judge found that inheritance funds received as far back as 1998 could still be found to be excluded property, we can hope that the factor of time will be less important under the new FLA. However, it is clear that the court will require that the funds be easily traceable, and if used for day to day family expenses or travel, they will not be reimbursed upon relationship breakdown.
Further, if invested inheritance funds decrease in value, you cannot look to family property to make up the difference. Also, even if inheritance funds are determined to be excluded from family property, any growth in the value of the funds during the term of your relationship will be included property unless you can put forward a good argument about fairness.
If you are looking to protect your inheritance or you are considering the effects of a relationship breakdown upon the future beneficiaries of an inheritance, it is strongly advised that you discuss your specific situation and goals with a lawyer.