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Gifts and inheritance can be tricky in separation agreements

Rising housing costs and economic changes have caused an increase in parental gifts to adult children. Many contribute large sums towards down payments or pass property on to their children before they pass away. For Alberta couples preparing a pre-nuptial agreement or drafting separation agreements, this money can be a point of contention.

If a break-up takes place, an Alberta court will generally declare that both spouses have half ownership of the matrimonial home. This remains true whether the the home was given to a child by his or her parents or if it was purchased with a financial gift to one spouse. In order to avoid challenges with this issue later on, many couples choose to draft marriage contracts specifying how possible future separation agreements will treat marital assets. Similar contracts can be set up between common-law couples. 

If children are unwilling to take the legal steps, parents can try to protect their financial gift by registering the gift as a loan. They can then decide whether to forgive the loan and can ask for it to be repaid if the marriage breaks down. If money is contributed to a child who is not invested in the matrimonial home, parents can also request that the inheritance be kept in a separate account to segregate it from shared assets.

While an inheritance or financial gift is often given to the spouse who received it during a break-up, things can get complicated if money is invested in shared property. While there are ways to separate inheritance money from other assets or to structure a down payment contribution as a loan, banking professionals caution that those with concerns should first speak to an Alberta lawyer and consider a formal contract. Legal advice is also a good idea for those drafting separation agreements and dealing with division of assets.

Source: The Globe and Mail, "How parents can keep down payment gifts safe when couples split", Brenda Bouw, Sept. 25, 2017

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