Leaving Money To A Child Whose Marriage Breaks Up

Like most parents, you may want to leave your kids an inheritance. But you know that not all marriages survive – so what happens to your gift if your child’s marriage breaks up?

Since March, 2013, under our new family law rules for division of property (and debts), family property upon separation must generally be divided 50-50, no matter which spouse owns it. But some things – like property (say a fancy car) which either spouse brought into the relationship and also inheritances a spouse receives while married – are “excluded property” which typically doesn’t need to be split.

So what happens if that inheritance, say a $500,000 gift, is then put into a bank account owned by your child’s spouse or used toward buying a house that’s also in that spouse’s name only? Does it stay “excluded” and remain only your child’s property? Or does it become family property that must be split with your child’s ex? This question has been hotly debated and led to differing results in earlier cases. Our appeal court has now recently dealt with it for the first time.

Here, Peter (names changed) received a $2 million gift by way of inheritance from a former employer. The bulk of the money was used toward buying a house that was placed in his wife Helen’s name only (basically to protect against potential future business claims Peter might face).

When their 10-year marriage broke up, $2 million from that house sale was set aside, with Peter saying this money was still his and excluded from division. Helen argued it belonged into the pot of family property.

The B.C. Court of Appeal agreed with Helen. There’s an established rule that if a husband simply transfers property to his wife outright during the marriage (like putting money in her bank account or a house in her name), it’s presumed to be a gift unless he can prove otherwise. Here (as often happens years later, regarding what was intended at the time), Peter wasn’t able to prove or persuade the court he hadn’t intended a gift to Helen. And like any outright gift, you can’t take it back later even if the marriage breaks up.

The court pointed out Peter couldn’t have it both ways – arguing “that’s not my property, it’s my wife’s” had there been business claims against him, yet now saying it was his property, not hers, after the marriage break-up.

So if your gift to your child is later put into your child’s spouse’s name (or maybe into both spouses’ names jointly), it (or the half that goes into the spouse’s name) is no longer excluded property – it becomes family property that is to be divided up if the marriage breaks up.

This important case means your planned gift may not end up with the result you intend. Speak to your lawyer about steps you can take to avoid an unwanted outcome.

Written by Janice and George Mucalov, LL.B.s with contribution by COBBETT & COTTON. This column provides information only and must not be relied on for legal advice. Please contact COBBETT & COTTON for legal advice concerning your particular case. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer. “You and the Law” is a registered trade-mark. ©Janice and George Mucalov.

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