Jason Wilkinson and his wife have a bi-weekly tradition. Make some tea, turn off your phone, sit in the kitchen and talk about money. Wilkinson says it’s a calming way to “discuss things that would otherwise be heated or controversial for people to discuss.”
The Saskatchewan-based couple thus brought up the topic of Ms. Wilkinson’s future inheritance and decided to move it to a separate account in her name rather than a joint account. “If we break up, the money will be hers,” Wilkinson said.
The couple’s pragmatic approach is far from the norm. Personal inheritance received during marriage is legally exempt from the family’s divisible assets if kept separately by the spouses and is often a highly controversial topic.
A $1 trillion estate will pass to Canadians by 2026, according to environment – Couples need to understand what they are up against. There are a number of factors that make marital inheritance management more complex, and vary slightly from state to state. Unfortunately, the first is considering the possibility of divorce.
“If there is inheritance that a spouse received during marriage, it is very common to be part of a property dispute if they separate,” says Christy Warren, a family attorney at Toronto-based Epstein Cole Law Firm.
In fact, a sense of unequal entitlement to inheritance can create friction even before separation. “I’ve seen many couples get very different when it comes to how to manage their estates, especially when one is racking up debt and the other is trying to save,” says Laurie Campbell, a business consultant and former CEO of Credit Canada Debt Solutions, a debt counseling nonprofit.
What should I say when my adult child asks for an inheritance early?
“One partner might say, ‘Let’s pay off the debt,’ but the other partner might say, ‘No, you get it?’ “And the money was left with me!”
Things get even more complicated when a spouse receives an income-generating inheritance during the marriage.
For example, Bruce Reed, an attorney at Edmonton-based Long Family Law, explains that if someone inherits money and invests it separately from their spouse, whether it’s real estate or something else, it remains exempt from the division.
“However, if an inheritance generates income during the marriage, such as rent income, that income may be subject to division,” Warren said.
In the case of a divorce, the couple and the court must begin the difficult process of tracing the original inheritance to identify which assets may be exempt. The court will have to determine how much the principal was. where was that money invested? And how did it grow?
In either case, the timing of the inheritance is important. Assets inherited before marriage are considered co-ownership and are usually divided in the event of a division. Married couples also “share equally the increase in inheritance from the date of marriage to the date of separation,” Warren said.
If the spouses want to avoid an inheritance dispute in the first place, lawyers recommend separating the property from the beginning. “Best practice is to put the estate in a separate account in your name and let it grow. Once you start mixing the money, you run the risk of not being able to exclude the asset,” Warren said.
But guarding your assets hard may not be good relationship advice. “Even if it was legally given to one of hers, wouldn’t you want to have the same awareness of how to use it?” says Toronto-based relationship therapist Kimberly Moffitt.
To defuse conflicts, she recommends holding regular financial meetings, “even if only for a few minutes,” as often as once a week. Start by discussing your long-term goals, she says, then work backwards to see how your inheritance and other assets can support those goals. So far, this approach has worked well for the Wilkinsons family. “If we’re together, the legacy benefits each other. If we part, it’s fair,” says Wilkinson.
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