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-   -   Inheritance - 2 questions (https://www.ottawadivorce.com/forum/showthread.php?t=17874)

in_time 07-26-2014 05:04 PM

Inheritance - 2 questions
 
Hi All,
This isn't a place I'd ever imagined I'd be... but such is life. Anyway I am pretty sure I'm headed for a permanent split with my wife. There are a couple questions I have regarding an inheritance I received during our marriage.
1. I understand that an inheritance is not included when equalizing/splitting assets. I kept it in a separate investment account. However, I did a prescribed rate spousal loan to her for tax purposes 2 years ago (all documented). I have since called back the loan, prior to us separating because I was worried she might start tapping into the capital (I can't imagine she would do such a thing... but she's surely not the person I used to know either). Does the spousal loan put this inheritance at risk of being claimed as communal property? Im not thinking she would make such a claim, but shes running with a bunch of gal pals that might push her this way.

2. Once we have calculated our asset split and equalization, the next step is to negotiate how that equalization is made up of (ie some $ from pension, some from home equity, some from RRSP etc). I will be the one to anti up. Is my inheritance on the table during this discussion? I think it is enough that it could tip the balance of certain options... if I wanted to buy out the mat home... I could put it in the pot as part of the settlement. But in general, are you expected to utilize all your assets, like inheritance to come to a fair agreement?

thanks!

Once.is.enough 07-26-2014 05:50 PM

No it would not be included in equalization. It was not commingled. The loan is an investment regardless of to whom it was made. She may argue differently but I don't think she would be successful. This advice is predicated on the information that you supplied regarding the documentation of the loan. If the loan has not been repaid she can use this as a debit in her equalization paperwork. The capital gain on the investment should be included as a credit on your sheet but not the principle. You could argue that it should not be included but I don't think you would be successful.

Then again I'm just some idiot on the internet.

in_time 07-26-2014 06:02 PM

Thank you Once.is.enough! I never thought of it in those terms.... but yes, that makes sense. It was an loan that I received interest on.... so that is a direct investment.
Hindsight is 20/20 of course. I would have had some nice capital gains that would have been isolated... now on her side of the assets. (I did get a bit back when we used the cap gains on her account to do TFSA contribs for both of us). And technically I will regain some of that in equalization process.

arabian 07-26-2014 08:20 PM

Money from inheritance (you received DURING your marriage) did in fact drizzle or mingle into your wife or joint finances by way of loan.

It might come down to the definition of "co-mingle" and what the mingled amount was used for.

What was the money used for?

shirley1011 07-26-2014 09:20 PM

any interest earned from inheritance must be split

Rioe 07-26-2014 09:59 PM

The inheritance should be off the table when it comes to equalization, since you kept it in a separate account. Whatever remains in that account is excluded. Whatever you took out and used on the family, ie, the loan, is now matrimonial property and subject to equalization.

For equalization, if you determine that you owe her money, you can get that money however you like. You can give her your half of the matrimonial home, you can split your pension, you can give her a cash payout, whatever combination works for you to make the math add up right. Some people have to take out a loan. You have an inheritance you can draw from instead. Just because it is the source of funds does not stop it from staying an excluded part of the equalization process.

in_time 07-26-2014 10:13 PM

I loaned her the money (as a prescribed rate spousal loan @1%). Those funds were in an investment account in her name. the goal being any capital gains and income would be taxed at her (lower) rate. So for the first two years, we save a few thousand in income tax payable to rev can. She has realized about $40,000 in profit in the account. Some of these profits did co-mingle (used for contribs to both our TFSAs and a contrib to her own RRSP). About 20k remains.

In terms of settlement... I was just thinking I should not immediately discuss the inheritance $$ initially... but bring it in as a negotiating tactic once I know what her intent is. It might be a good lever to tip a proposal I favor (ie buying out the mat home). Not sure at this point what works best.

I am really hoping that none of this is necessary, that we mostly agree on most things... and we ride off into the sunset (on separate horses in separate directions of course).

Rioe 07-26-2014 10:28 PM

Quote:

Originally Posted by in_time (Post 177160)
I loaned her the money (as a prescribed rate spousal loan @1%). Those funds were in an investment account in her name. the goal being any capital gains and income would be taxed at her (lower) rate. So for the first two years, we save a few thousand in income tax payable to rev can. She has realized about $40,000 in profit in the account. Some of these profits did co-mingle (used for contribs to both our TFSAs and a contrib to her own RRSP). About 20k remains.

The money that went from your inheritance to her became matrimonial money, and is still half yours, no matter whose name is on the accounts, who claimed it on income tax and where the money went, including the profit. The only money which is excluded from equalization is the amount remaining in your inheritance account.

If any money got repaid back into the inheritance account, that might be iffy. I'm not sure if you can un-co-mingle funds. Depends on your documentation and how hard you want to fight. The amount may not be worth fighting over.

in_time 07-26-2014 10:55 PM

Hi Rioe,
Just to clarify... at date of separation, the loan was closed and the principal of the loan was back in my inheritance account in my name (she still had the profit generated from the investments remaining).

ottawa_divorce_dad 07-28-2014 12:02 PM

Since the loan from the inheritance account was repaid on the date of separation, my expectation would be that it would not be part of equalization. Inheritance funds appear to have been keps separate from matrimonial finances and the clearest example of that is the fact that the loan was repaid and the inheritance account replenished on the date of separation.

I would list the inheritance account balances on the date of separation as "excluded property" which will therefore never be part of equalization. No need to use it as a negotiation tactic imo.


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