Inheritances and gifts at separation

The short answer

In most of Canada and the US, an inheritance or a gift from someone outside the marriage starts out as yours alone. You can lose that protection by mixing it with family money, putting it in joint names, or spending it on the family home. Ontario excludes the gift itself but not a matrimonial home bought with it; BC excludes the original value but shares the growth; Alberta exempts the value at the date you got it and may divide the increase; US states call it separate property and share it once it is commingled or transmuted. In every case the person claiming the exclusion has to prove it, so keep the paper trail.

When a parent dies and leaves you money, the last thing on your mind is what happens if your marriage ends. Years later, at separation, it can be the first thing. The rules on inheritances and gifts are reasonably protective across Canada and the US, but they punish two very common decisions: putting the money into the family home, and putting it into a joint account. This guide explains the rules in Ontario, British Columbia and Alberta, the general US approach, and the steps that keep an inheritance yours.

A warning before the detail. Property law is provincial and state-based, the rules for married and unmarried couples are different, and the outcomes turn on documents. Nothing here is advice on your facts. Confirm with a family lawyer where you live, and if you are reading this before a windfall arrives rather than after a separation, a short conversation now is worth a great deal later.

Ontario: excluded, unless it went into the house

Ontario married spouses do not divide property. They equalise its value: each spouse calculates their net family property and the one with more pays half the difference. Section 4(2) of the Family Law Act lists property that is excluded from that calculation. The first item is "Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage." Also excluded are income from that property if "the donor or testator has expressly stated that it is to be excluded", damages for personal injury, life insurance proceeds, property traceable to any of these, and anything a marriage contract excludes.

Four points matter in practice, drawing on Legal Line's summary of the Act:

It has to come from a third person. Gifts between spouses are not excluded. Gifts from parents and inheritances from anyone outside the marriage are.
Income and growth are not automatically excluded. Interest, dividends or rent from the inheritance are shared unless the will or a written statement from the donor says they are excluded. Estate lawyers call this a family law clause. The All About Estates blog notes that courts have read "income" broadly, including growth in value and property bought with the inheritance, so the clause matters.
Tracing works, except into the matrimonial home. If you sold the inherited cottage and bought a rental condo with the proceeds, the condo is traceable and still excluded. If you used the money for a down payment, mortgage paydown or renovation of the home you live in, All About Estates is blunt: the default rules "do not permit excluded property to be traced into a matrimonial home" and "excluded property status is lost without additional planning." An inherited property that becomes the family home is treated the same way: "it is not excluded property."
You have to prove it. Legal Line: "The onus to prove the gift, is upon the person making the claim of having received it." Money that went through a joint account and cannot be followed is usually treated as shared.

Gifts and inheritances received before marriage are treated differently again: their value at the date of marriage is deducted, but any increase during the marriage is shared, and the pre-marriage deduction does not apply to a matrimonial home at all. See matrimonial home and property division in Canada for the wider framework.

British Columbia: the original value is yours, the growth is shared

BC's Family Law Act applies to married spouses and to unmarried couples who have lived together in a marriage-like relationship for at least two years. Section 85(1) lists excluded property, including "property acquired by a spouse before the relationship between the spouses began", "inheritances to a spouse", "gifts to a spouse from a third party", personal injury awards, certain insurance proceeds, some trust interests, and "property derived from property or the disposition of property" in those categories.

The catch is section 84(2)(g): family property includes "the amount by which the value of excluded property has increased since the later of the date" the relationship began or the property was acquired. So if you inherited $200,000 of shares that are worth $320,000 at separation, the $200,000 is excluded and the $120,000 of growth is divided equally. Section 85(2) puts the burden on you: "A spouse claiming that property is excluded property is responsible for demonstrating" it. The Clicklaw wikibook adds that all money a spouse holds in a financial institution is family property unless that spouse can prove it is excluded.

Commingling is the recurring problem, and the Court of Appeal addressed it in Mills v. O'Connor, 2025 BCCA 34. Where excluded and family money have been mixed, the court adopted the pro rata approach, which "treats excluded property and family property equally", rather than first-in-first-out tracing that favoured the excluded funds. The original inherited property in that case stayed excluded, but the increase in its value up to the sale "amounted to family property subject to 50/50 division." The message for anyone with an inheritance in BC: keep it in its own account, in your own name, and keep the statements from the day it arrived.

Clicklaw also flags a trap: if an inheritance is moved into joint names or into the other spouse's name, there is an argument that it was gifted to the other spouse and became family property. Section 85(3) says the exclusion survives a transfer between spouses, but you will still be arguing about intention, so do not create the argument.

Alberta: exempt at the value you received it

Alberta's Family Property Act, which covers married spouses and adult interdependent partners, exempts property acquired by gift from a third party, by inheritance, or before the relationship, at its market value when acquired or when the relationship began. As Getz Collins summarises section 7, growth in the exempt property "may be considered as divisible family property", and the exemption is lost if the property "is not maintained in a traceable or identifiable form." The spouse claiming the exemption "bears the onus of proving that the asset in question falls under the exemption." Adding a spouse to title reduces the exemption; Spectrum Family Law describes Alberta case law treating half the exemption as lost when property goes into joint names, a point to verify with an Alberta lawyer because the result depends on the facts and the evidence of intention.

Elsewhere in Canada

Every province has a version of these rules, and they differ in detail: whether the growth is shared, whether the family home is treated specially, whether unmarried partners are covered at all, and whether a court can override the exclusion when the result would be unfair. Quebec excludes gifts and inheritances from the family patrimony and the new parental union patrimony. Use FairWell's provincial guides as a starting point and confirm with a local lawyer.

The United States: separate property, commingling and transmutation

US states divide marital property under either community property or equitable distribution rules, but nearly all of them treat gifts and inheritances to one spouse as separate property. California's Family Code section 770(a) is typical: separate property includes "All property owned by the person before marriage", "All property acquired by the person after marriage by gift, bequest, devise, or descent", and "The rents, issues, and profits of the property described in this section." The California courts' self-help guide says the same in plain words: "Property you didn't earn, like a gift or inheritance one of you received while married, is not community property", with the condition that "it belongs only to you, as long as it was kept separate."

Three concepts come up in every state:

Commingling. The self-help guide's example: a house bought with separate money for the down payment and community earnings paying the mortgage has equity that "is now part community and part separate property." Untangling it needs records; without them, the mixed asset tends to be treated as marital.
Transmutation. Changing separate property into marital property by agreement or conduct, most often by retitling an inherited asset in both names. Many states require a written declaration for a transmutation, but a joint deed can be enough to start the argument.
Appreciation. States differ on whether the growth in separate property during the marriage is shared, and on whether it matters if the growth came from the market or from a spouse's effort. Equitable distribution states may also consider separate property when deciding what is fair overall.

FairWell's property division in the US guide and the separate property and commingling glossary entries go further, and the state pages list local resources.

How inheritances actually get lost

Across all of these systems, the same handful of decisions cause the damage:

Paying down the mortgage on the family home. In Ontario the exclusion is gone. In BC, Alberta and most US states you may get the contribution back, but only if you can prove the amount and the source, and the growth is usually shared.
Depositing the cheque into the joint account. Even if the money is still there, you now have to trace it through every transaction since.
Putting the inherited cottage or investment account into joint names "for estate planning" or "because we're a team". This is the clearest way to convert yours into ours.
Spending it on family life with no record. Money spent on vacations, cars that depreciated, or household bills is gone; there is nothing left to exclude.
Losing the paperwork. The estate's final accounting, the deposit record and the statements from the receiving account are the proof. The burden is on you in every jurisdiction above.

How to keep an inheritance or gift traceable

Open a separate account in your sole name before the money arrives and deposit it there. Never run household money through that account.
Keep the source documents forever: the will or trust, the executor's distribution letter, the deposit record, and every statement since.
If you invest it, do so from that account and keep the new asset in your own name. Reinvest income back into the same account rather than into the joint one.
If you want to use it for the family home, decide with your eyes open. In Ontario, the only reliable protection is a marriage contract that changes the equalisation rules; All About Estates describes this as the planning solution. In BC, Alberta and the US, keep a written record of the amount and date, and consider a short agreement acknowledging the contribution.
Ask the giver for a family law clause. A parent making a gift or writing a will can state that the gift and any income from it are to be excluded from net family property. In Ontario that is the only way income from the gift is protected.
Tell your spouse. Hiding an inheritance is not protection. Full financial disclosure is required at separation, and an inheritance that was concealed can turn a clean exclusion into a credibility fight. See the financial disclosure checklist.

If you are separating now

Gather the paper trail first: the source documents, the account the money went into, and where it went from there. List what was spent, what was invested and what went into the home, with dates. If you were the recipient, be realistic about what can be traced and what cannot. If you are the other spouse, do not assume the exclusion is airtight; ask for the records that prove it. Either way, resolve it in the agreement with specifics: the excluded amount, the asset it sits in, and how any growth is treated. The FairWell separation agreement builder has a schedule for excluded and separate property, and the directory lists family lawyers and financial professionals who do tracing work.

Sources

This guide is general information, not legal advice. Property rules differ by province, territory and state and turn on your documents. Speak to a family lawyer where you live before relying on an exclusion or agreeing to give one up.

Common questions

Is my inheritance split if we separate?

Usually not the original amount, if you kept it separate and can prove where it came from. Ontario excludes it unless it went into the matrimonial home; BC and Alberta exclude the value when received but may share the growth; US states treat it as separate property until it is commingled or retitled jointly.

What if I used my inheritance to pay down our mortgage?

In Ontario the exclusion is lost, because excluded property cannot be traced into a matrimonial home without a marriage contract. In BC, Alberta and most US states you may be able to claim the contribution back if you can prove the amount and source, but you will likely share any increase in the home's value.

Does it matter whose account the money went into?

Yes. Money deposited into a joint account has to be traced through every later transaction, and the person claiming the exclusion carries the burden of proof in every jurisdiction covered here. A separate account in your sole name is the simplest protection.

Are gifts from my parents treated like an inheritance?

Generally yes, if the gift came from a third party to you alone. Gifts between spouses are not excluded. Ask the giver to state in writing that the gift and any income from it are meant for you alone.

Is the growth on an inheritance shared?

It depends. BC shares the increase in value during the relationship. Alberta may divide the increase. Ontario shares income from the inheritance unless the will or donor says otherwise, and courts have read income broadly. US states differ, and some distinguish passive market growth from growth due to a spouse's effort.

Record excluded property properly

The FairWell separation agreement includes a schedule for inheritances, gifts and separate property, with space for the source documents and how growth is treated.

Start the separation agreement

This guide is general information for parents, not medical, psychological or legal advice. It draws on published research and guidance from recognised health and family justice bodies, listed under Sources. Every child and family is different. If you are worried about your child or yourself, talk to your family doctor or a qualified professional. FairWell can help you find one through the professional directory. How we write and check our guides.