Inheritances or gifts to one or both spouses/partners before, during or after the relationship can be tricky to divide. Whether the inheritance or gift is exempt property for one person is often a point of disagreement. It depends on who the inheritance or gift was left to and what they did with it once they got it.
The same rules that apply to inheritances and gifts also apply to other exempt property, including assetsassets Something a person owns that has value. Assets include houses, vehicles, furniture, money and investments. acquired before the spouses/partners started living together, tort damages or non-property insurance payouts.
The information on this page applies to spouses and partners only. The law is different for unmarried couples who are not adult interdependent partners.
On this page, “partner” refers to an adult interdependent partner and “property” refers to an inheritance, gift, asset acquired before the spouses/partners started living together, tort damages or non-property insurance payout that may be exempt property.
Need to know
- Not all inheritances, gifts, assetsassets Something a person owns that has value. Assets include houses, vehicles, furniture, money and investments. acquired before the relationship, tort damages or insurance payouts are exempt from being divided after a separation.
- Whether property is exempt depends on who received it and what they did with it.
- If you mix the property with family property, you may lose your exemption.
- If you spend the property on something that you used up, like a vacation, then you lose your exemption.
Get started
Learn the basics about the rules for dividing everything up before you deal with exempt property.
Next, make sure you understand how to share financial information, as well as how to divide your assets and debts.
Want to protect your exempt property?
If you receive property in your name only before, during or after the relationship, you can take steps to keep it as exempt property.
- Keep the property in your name only. If it is money, do not deposit it into joint accounts or use it to buy something jointly with your spouse/partner. If it is property, such as a home, keep it in your name only and do not use it as the family home.
- Spend the property on things in your name only. Use it to buy assetsassets Something a person owns that has value. Assets include houses, vehicles, furniture, money and investments. that maintain their value or increase in value, not investments. Do not use the property to pay off a mortgage, pay for utilities and taxes for the family home or to renovate the family home that is in both you and your spouse/partner’s names.
- Sign an agreement with your spouse/partner that says the property is exempt property, no matter how you use it during the relationship.
- Speak to a family law lawyer before making any large purchases to make sure the new property remains exempt.
Gather your documents
You need documents to prove your right to the exempt property. This could be:
- a copy of the WillWill A legal statement of how a person wants their estate to be dealt with after their death. and death certificate of the person who left you the inheritance
- a formal notice to you as the beneficiarybeneficiary A person who receives income or property from a trust. An example of a trust is a deceased person’s estate. of the inheritance
- a signed beneficiarybeneficiary A person who receives income or property from a trust. An example of a trust is a deceased person’s estate. letter from the estate’s personal representativepersonal representative The person named in a Will to carry out the deceased person’s wishes. confirming what inheritance you received
- a copy of the cheque you received for the inheritance, gift, proceedsproceeds The money left from the sale of an asset after all the debts related to it are paid. For example, the proceeds from the sale of a house are the money left over after paying the mortgage owing, the realtor and the lawyer. from selling the asset acquired before the relationship, tort damages or insurance payout
- a copy of the Certificate of TitleCertificate of Title A document from the Alberta Land Titles Office that says who the owners of a property are and others who have an interest in the property, such as a mortgage holder. if the inheritance or gift is real estate such as land or a home
- a gift letter from the bank if the gift went into a down payment on real estate
- a separation agreement from a previous relationship for property owned by one person before the current relationship
You also need documents showing what you did with the property once you received it. These could be bank statements, registration documents or receipts.
You must show these documents to the other person when you share financial information about your property.
Trace the property
Tracing the exempt property means figuring out where the property came from and where it is now.
To help you trace the property, think about these questions:
- What did you do with the property once you received it?
- Did you mix all or some of the property with other property you or your spouse/partner own?
- If you spent the property, how did you spend it?
- If you didn’t spend the property, where is it now?
If you received a cheque for the property, start tracing the money from when you deposited the cheque into your account. If the money is still in the account now, in your name, then tracing is easy!
Tracing can be more complicated where the property has moved around, changed form or been mixed with other property. For example, if you used a cash inheritance to buy your current vehicle, you may be able to easily trace the inheritance from cash to the new vehicle.
If you mixed the property with other money to buy an asset, then you cannot claim the whole asset as exempt property since you cannot trace its entire value to only the property. For example, if you used a cash gift and other savings to buy a vehicle, only some of the vehicle’s value will be exempt.
If you used the property to buy something that depreciates in value, your exemption will not have the same value as the day you first received it. For example, if you used your tort damages to buy a vehicle for $40,000 that is now worth only $20,000, then your exemption may only be $20,000.
If you deposited the money into a joint account with your spouse/partner and used the money to pay off debtsdebts Money you owe to others, including individuals and companies. Debts include mortgages, credit cards and loans. or go on a vacation, then you may not be able to trace the money to a current asset that you can claim as exempt property. You may lose your exemption.
Determine the category of property
Once you have traced the property, you must figure out if the property is fully exempt or if all or part of it will be divided equally or unequally. Learn more about these three categories on the Rules for dividing everything up page.
Property is only fully exempt if you haven’t mixed it with other family property or property held jointly in the names of both spouses/partners.
If you mixed your property with family property or moved it to property held in joint names with your spouse/partner, then the law sees it as a gift you gave your spouse/partner unless evidence shows otherwise, such as a Promissory Note. You may lose your exemption if it’s no longer possible to figure out whether the property was spent. For example, if the property goes into a joint bank account where you withdraw and deposit other money for many years.
Divide your property
Follow the steps on the How to divide assets and debts page to divide the exempt property along with the rest of your property.
Potential issues
You disagree over whether the property is exempt property.
Get help from a family law lawyer to determine if it is exempt. If you do not agree that the other person’s property is exempt, apply for an order dividing property and ask the court to decide on the property.