Wills

Protecting Your Inheritance in a Marriage Breakdown

A Will is the best tool to allow you to provide for your family and loved-ones, and to ensure that your legacy is protected in the way that you wish. Often, this means providing for your children and their families upon your passing through an inheritance. However, something that is often overlooked in the planning stage is the effect of a marriage-breakdown on an inheritance.

When drafting a Will, you will be asked to consider several different circumstances. You will be able to plan exactly how your property should be distributed. However, something you have less ability to plan for is how the inheritance will trickle down once you are gone and your child has received their inheritance.

Once received from the estate, the funds from the inheritance are the property of your child. As you had planned, your estate planning has benefited your child and their family.  However, confusion may arise in an instance of marriage breakdown between your child and their spouse. In contemplation of this situation, it would likely be your intention that your child’s ex-spouse not receive any part of the inheritance, but rather that the inheritance flows to your children, grandchildren or generations down your bloodline. Contemplating a marriage breakdown will allow you to make a plan for the possibility and protect the inheritance from being split in a divorce.

First things first. Regardless of the amount of estate planning you do, the most important thing you can do to prepare is openly discuss your estate plan with your children so that they are clear on your goals and intentions. Remind them that the purpose of your planning is to provide for their families, and also to protect them. Urge your children to work with a lawyer to develop an estate plan of their own. By doing this, they may be able to successfully allocate their inheritance and to contemplate a marriage-breakdown themselves.

If your child and their spouse divorce, all family property is subject to division. Under Ontario law, inheritance funds are presumptively excluded from family property, however as soon as they become co-mingled with family property, they become included (Family Law Act, s.4(2)). Co-mingling can happen when the funds are used to purchase a matrimonial home, are put into a joint bank account, or otherwise used as family property. Encourage your children to keep their inheritance separate from any marital assets so that they remain excluded from family property. This can be done by putting it in an entirely separate bank account, in their name only. This will make it simple to trace back to its origins as an excluded inheritance, and means that, upon divorce, the funds remain your child’s asset exclusively.

If your child is not yet married, you may also consider suggesting to your children that they speak with their partner and a lawyer regarding a prenuptial agreement. This type of agreement can set out that any gifts from inheritance are specifically excluded on separation or divorce.

If you are particularly concerned with ensuring that your grandchildren receive the benefits of the inheritance, consider leaving specific bequests directly to the grandchildren in your Will, rather than relying on the inheritance to make its way down through their parents. By setting aside specific amounts for your grandchildren in your Will, there will not be any contingencies on their benefit.

Protecting your inheritance is possible, and simply requires a little bit of thought and preparation. Come see us today to discuss your situation, and we will determine the solution that best fits your needs!