Gifts and Net Family Property: What is Included?

It has been said that the excellence in a gift lies in its appropriateness rather than its value. This is particularly true within family law.

For married couples in Ontario, the timing of a gift, who gave the gift, how the gift was given, and what the gift was used for can influence who has rights to the gift upon separation.

During the season of gift-giving, it can be helpful to know some of the basic family law rules that apply to gifts under the Ontario Family Law Act.

Gifts given before the marriage

If a gift is given before the marriage, the value of the gift on the date of the marriage will be considered part of the spouse’s property that is brought into the marriage. The value of the gift at the date of marriage will be deducted from the spouse’s net family property upon divorce, and is not included in the equalization of net family property between spouses, regardless of who gave the gift.

However, if this gift increases in value during the marriage, the increase in value will be included in equalization.

Gifts given during the marriage

Gifts given between spouses during the marriage will not be excluded from the spouse’s net family property. Their value will be subject to equalization.

Gifts given by a third party, such as a parent or a friend, to one of the spouses during the marriage, are excluded from the spouse’s net family property, assuming certain conditions are met. Any increase in value of the gift during the marriage will also not be included in equalization.

For the “third party” gift-giver, there are two things of which to be aware:

• It is important to be clear whether the gift is given to one spouse alone, or to both spouses, or to the family as a whole. If a parent gives a generous gift to their daughter’s family, rather than to their daughter alone, the daughter will not be able to exclude the gift upon equalization.
• If the gift can earn interest or income, such as a rental property or an investment account, the gift must be accompanied by a gift document that specifically provides for the interest or income to be excluded from net family property. Otherwise, the interest or income earned will be included in equalization.

If the recipient of the gift later sells the gift, it is important to keep evidence that traces the proceeds of the sale. The proceeds from the sale may also be excluded from net family property if they can be traced to property that is individually owned by the spouse on the date of separation. The proceeds will not be excluded if they were intermingled with other funds or invested into the matrimonial home. Evidence that traces where the proceeds of gifts went becomes very important if there is a marriage breakdown.

Generally, any significant gifts to one spouse should be kept in a separate bank account or in a solely owned asset that can be traced back to the original gift. If you do not want to share your gift as part of family property, you also should not spend it, use it to pay down debt or invest it into the matrimonial home, without first speaking to your lawyer about the legal consequences of doing so, and the possibility of entering into a marriage contract to provide for some reimbursement of the gift in the event of a separation.

Want to read more about gifts? Take a look at our previous post on purchasing Christmas presents after a couple has separated.