Ensuring inheritances are protected before a marital breakdown.
Receiving a large inheritance? If you are in a relationship and you receive an inheritance, you may need to consider a Marriage/Cohabitation Agreement for your protection.
What is covered under a Marriage Agreement?
Cohabitation Agreements and Marriage Agreements are nearly identical. A Cohabitation Agreement is a contract between people who are planning to or who are already living together in a marriage-like relationship. This Agreement formalizes expectations regarding use and ownership of property while the parties live together and if/when they separate. A Marriage Agreement is a similar contract, only it is between legally married spouses, regardless of how long they have been married.
When do you need a Cohabitation Agreement?
Under the Family Law Act, for the purpose of spousal support and responsibility for property/debt, two people are not considered “spouses” until they live together for two continuous years in a marriage-like relationship. Then, under the Family Law Act, common-law relationships and marriages are treated virtually the same. A variety of factors indicate a marriage-like relationship, such as the parties filing taxes together, sharing a bedroom, sharing finances, having children, and presenting themselves as a couple to others.
Are inheritances protected by BC law?
Yes, the inheritance itself is protected, but its “growth” is not. In BC, “family assets” (meaning typically anything acquired during the relationship, by either spouse) are presumptively divided in half upon separation. Some assets, known as “excluded property”, do not get divided upon separation. “Excluded assets” are property that only one spouse has an interest in, including assets owned pre-relationship or acquired post-relationship, inheritances, and gifts to one party only. However, some “excluded assets” may be subject to division. If an “excluded asset” grows in value over the course of the relationship, the amount that the asset grows in value is family property. Thus, the gain or growth of an inheritance is subject to division. A Cohabitation or Marriage Agreement can protect the growth in value of the inheritance.
Certain circumstances may cause most or all of an inheritance to lose the status of “excluded property,” such as when an inheritance is transferred into the other spouse’s name (i.e. if inherited money is transferred into a jointly owned bank account). In this case, the Court may consider the inheritance transfer to constitute a “gift” from the beneficiary spouse to the other spouse. The transferred amount would then be considered “family property”, and lose the “excluded property” status.
Evidence of the intention of spouses regarding ownership of an inheritance is vital. Formalizing the understanding of spousal ownership of inherited money/assets adds a layer of protection to the excluded status of the inheritance, in the event of a separation. Even if the Will-maker (e.g. your parent) has been clear in their Will that you and only you are to inherit, family law can overrule this and your spouse may be able to claim an interest in your inheritance. This makes it essential that a formalized Cohabitation or Marriage Agreement dealing with an inheritance coincides with the intentions of your parents’ Will.
As a further consideration, a beneficiary planning to use all or a portion of their inheritance to purchase real property with their spouse should consider registering as tenants in common with their spouse, as opposed to joint tenants. A tenancy in common can be registered in uneven proportions. For example, if Spouse A contributed 30% of the purchase and ongoing costs, and Spouse B 70%, then the title could be registered as 30/70 between them. This tactic ensures that the ownership percentages will accurately reflect the portion contributed by each spouse.
Although Cohabitation and Marriage Agreements are contracts, they can be susceptible to future challenges by a spouse for a variety of reasons. It is prudent for spouses to seek independent legal advice regarding their rights, and to obtain the assistance of a lawyer in drafting a Cohabitation or Marriage Agreement.