Inheritance and the Matrimonial Home
Ontario`s Family Law Act has a profound impact on a couple`s financial situation on dissolution of a marriage. For instance, under Part I of the Act, “Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of marriage” is excluded from an individual’s net family property (“NFP”). However, if the inheritance is invested into the matrimonial home, it ceases to be excluded from NFP.
With rising house prices in cities across the country, a large part of a young couple`s income tends to go into down payments, mortgage payments and improving the residence. It can take years for couples making modest incomes, many with some student or consumer debt, to save enough for a down payment on a starter home in a sought-after neighbourhood. When inheritance comes into the picture, the task becomes much less onerous.
With a fear of losing the sole right to one`s inheritance, however, young couples may think twice before investing the money in their family home.
The story of a couple encountering this scenario was recently illustrated in a MoneySense article here. It also outlines the possible options for the money in this type of situation.
One option is to keep the inheritance separate from a matrimonial home and invest the money for future use. This can be a good option if you are financially savvy and/or hire professionals to assist with management of portfolios. However, real estate is generally a solid way to invest, and means a couple can stop paying rent and start putting money into their future.
Another, more balanced, option would involve putting a portion of the money into the family home, while keeping the rest in other, individually-owned, investments. Although putting some money into the family home is a risk if divorce takes hold down the road, it is also a smart investment for the family’s future and for diversification of assets. One comfort in the compromise is that the young couples may eventually have children, thereby causing the couple to remain in each other`s lives, regardless of separation or divorce.
Thank you for reading.