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Protecting Gifted Properties Upon Marriage Breakdown

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What’s Yours is Mine, and What’s Mine is Yours Mine

 

It is every millennial’s dream to be gifted a property or given enough money for a down payment. With housing costs continuously soaring, we could all use some help with our home-buying woes. For those lucky enough to receive gifts of money or property, there is an important factor to take into consideration and it has nothing to do with paint samples or furniture shopping. When receiving a property as a gift, it is important to consider how to protect the gift in the event of a marriage breakdown.

Most people assume that marriage contracts are meant for couples who have vast financial assets, inheritances, trust funds, or corporate holdings. While couples with complex finances certainly benefit from having detailed marriage contracts, the marriage contract, or domestic contract, is useful in numerous situations.

Under the Family Law Act, when there is a breakdown of the marriage, parties proceed through an equalization process whereby all property (which is called your “net family property”) is equalized between the parties. An equalization of property means that each party is entitled to one-half of the value of the property accumulated during the marriage. This equalization is done to offset any imbalance between the spouses with respect to their assets and the matrimonial home is often the most valuable property to be equalized. If you have been gifted a home and that home is your “matrimonial home”, then your spouse may be entitled to benefit from that asset, even though they didn’t purchase the home.

Under the Family Law Act, there are certain rules regarding which property can and cannot be excluded from your net family property. The exclusions can be tricky, and an equalization requires an in-depth legal analysis. For example, inherited property which forms part of the matrimonial home cannot be excluded. This means that if your parents give you $100,000.00 to buy a home and you use the money to purchase a home with your spouse, the money (and the home) can no longer be excluded from equalization.

Example A: Billy receives $100,000.00 from great aunt Ethel and puts it into a sole savings account. When he and his spouse separate, the $100,000.00, plus any increased value, is still in the sole savings account. Can this be excluded? Yes!

Example B: Billy receives $100,000.00 from great aunt Ethel and uses it to buy a matrimonial home for himself and his spouse. Can this be excluded? No!

So how can you protect a gifted property in the event of a marriage breakdown? Simple – you execute a domestic contract. In order to exclude gifted property which forms part of, or is, the matrimonial home, parties need to enter into a clear and unambiguous domestic contract. A domestic contract can be as simple or complex as you need it to be. However, to be able to properly exclude gifted property the parties need to clearly delineate the excluded property, exchange financial disclosure, provide generous details for the domestic contract, and obtain independent legal advice. The contract is a way of clearly identifying which property is excluded.

Full domestic contracts can address topics such as spousal support, child support, life insurance, household contents and property, debts and liabilities, dispute resolution, estate rights, etc. However, a domestic contract can also be simple and include only provisions addressing the matrimonial home and disposition of the matrimonial home.

However, the rules of Family Law are complex. Even with the presence of a domestic contract a court may, on an application, set aside the domestic contract. Therefore, it is important to seek legal advice and properly disclose all financial assets, debts, and liabilities before the domestic contract is signed in order for it to remain valid and enforceable. Always contact a lawyer when you are dealing with questions about property or gifts of a fair amount, especially when you want to ensure the property or gift ends up in your pocket in the event of a marriage breakdown.

So, before you accept a house from your great aunt Ethel, go see a lawyer. It might just save you a lot of money in the long run.

 

Chelsey Gauthier is an Associate with Lancaster Brooks & Welch LLP Family Law Department and may be contacted at 905-641-1551

 

 

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