Gifts and Inheritances: Are They Protected When You Separate in BC?

Your parents helped with the down payment. An aunt left you money. A grandparent passed down the family cabin. If your relationship ends, does your spouse share in any of it?

In BC, gifts and inheritances to one spouse start out protected, but the protection is narrower than many people expect. This guide explains what is excluded, what is shared, and the records that make the difference.

The starting rule: gifts and inheritances to one spouse are excluded

BC's Family Law Act shares family property equally when spouses separate, unless an agreement or court order says otherwise. For the basics, see our guide to dividing family property in BC. This article looks closely at one category: excluded property.

The same rules apply to married spouses and to unmarried spouses who lived together in a marriage-like relationship for at least two years. Section 85 of the Act lists what is excluded, including:

• Inheritances. Money or property left to you when someone dies.
• Gifts from a third party. A gift to you from a parent, relative or friend. A gift from your spouse is not on the list.
• Certain trust interests. Property held in trust for you from these sources, and an interest in a discretionary trust that someone else set up and that you did not contribute to.
• Property derived from any of these. If you sold inherited shares and bought a rental condo with the proceeds, the condo can also be excluded, to the extent you can show where the money came from.

An inheritance you receive after you separate is not family property in the first place, because family property is identified as of the separation date. And whatever the timing, the spouse who says property is excluded has to prove it.

The growth in value is shared

The increase in value of excluded property is family property, measured from the later of the date the relationship began and the date you received the property. Broadly, you keep the value when you received it; what it gained during the relationship is divided.

Example only: during the relationship you inherit a cabin worth $400,000. When you come to divide property, it is worth $550,000. If you can prove the inheritance and its value when you received it, the $400,000 is excluded, and the $150,000 increase is family property that is generally shared equally.

So you need evidence at both ends: the value when you received it, and the current fair market value. Family property is generally valued as of the date of the agreement dividing it or the court hearing, not the separation date.

When the money gets mixed: joint accounts, the mortgage and renovations

Most disputes are less about whether something was inherited than about what happened to it afterwards. Because you must prove the exclusion, you also need to show where the money went. That is tracing, and it gets harder each time the money moves.

The Act now says that an exclusion continues even if ownership of the property is transferred from one spouse to the other, and it has dropped the old presumptions that courts once used to decide whether a transfer between spouses was a gift. Putting an inheritance into joint names is therefore not, by itself, the end of the exclusion. The practical problem is proof:

• A joint account. If the account is then used for groceries, travel and bills, it may become impossible to show that any of the inheritance is still there.
• Paying down the family mortgage. You may still be able to claim the amount as excluded, but you will need records showing the payment came from the inheritance, and you should expect the claim to be examined closely.
• Renovating the family home. Inherited money spent on a kitchen or an addition becomes part of the home's value. Showing how much of that value is excluded depends on clear records of what you paid and when.

Records kept at the time, such as statements, estate distribution records and receipts, are the strongest evidence. Rebuilding them years later is slower, costlier and sometimes impossible.

Money from parents: gift or loan, and for whom?

Parents often help with a down payment or a renovation. If the relationship ends, three questions can decide what happens to that money:

• Was it a gift or a loan? A gift to you is excluded property. A loan is different: a debt taken on during the relationship can be family debt, which both spouses share.
• Who was it for? The Act excludes gifts to a spouse from a third party. If the money was meant for both of you, it may not be excluded at all.
• What do the papers say? A lender may ask for a gift letter when parents contribute to a down payment. Check whom it names: a letter describing the money as a gift to both of you can make it harder to argue later that it was yours alone.

The simplest protection is a short note, signed by your parents when the money changes hands, saying whether it is a gift or a loan and who it is for. If it is a loan, record the repayment terms too.

Can a court divide excluded property anyway?

Only in limited cases. The Supreme Court must not divide excluded property unless family property or debt outside BC cannot practically be divided, or it would be significantly unfair not to divide it. For the second test, the court looks at the length of the relationship together with factors such as the other spouse's direct contribution to preserving, maintaining or improving the property, and the terms of any agreement between you about it, including terms about a transfer.

Separately, the court can order an unequal division of family property, including the shared growth in value, but only where an equal division would be significantly unfair.

Protecting a gift or inheritance before there is a problem

• Keep it in your own name. A separate account in your sole name, with the estate or gift documents filed alongside it, makes tracing straightforward.
• Keep the paper trail. Hold on to estate distribution records, transfer confirmations, appraisals and the statements that show each move of the money.
• Write it down if you mix. If you put inherited money into the family home or a joint account, record together what you contributed and how you both intend it to be treated.
• Use an agreement. A marriage or cohabitation agreement can say how gifts and inheritances, including future ones, will be treated on separation. Our article on what a marriage agreement can and cannot do explains the limits.
• Talk to the family. Parents who plan to leave you an inheritance may want to raise this with their own lawyer when they make or update their wills. Our list of estate planning documents every BC adult should have is a starting point.

If you have already separated, keep the deadline in mind. A claim to divide property must generally be started within two years after a divorce order for married spouses, or after separation for unmarried spouses. Our guide to separation for couples who lived together covers the unmarried rules.

Worried about an inheritance or family gift? Get the records in order first

Our family lawyers can review how the gift or inheritance was received and used, help you assemble the tracing evidence, and prepare or review a marriage, cohabitation or separation agreement that deals with it.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.