British Columbia Law
Protecting an Inheritance During a BC Divorce
<p>British Columbia's <em>Family Law Act</em> gives inheritances special status in a divorce: they are excluded from family property, meaning you do not have to share them with your spouse. But this protection is not automatic — it depends entirely on how you have managed the inherited assets during the marriage.</p>
<p>Many people lose inheritance protection without realizing it, simply through normal financial decisions that seemed sensible at the time.</p>
<h2>The Basic Rule: Excluded Property</h2>
<p>Under section 85 of the <em>Family Law Act</em>, property inherited by one spouse — even during the marriage — is excluded from the pool of family property that gets divided equally on separation. The same applies to gifts from third parties to one spouse, and to pre-relationship assets.</p>
<p>The exclusion applies to the original value. Any <em>increase</em> in that value during the relationship is family property and is shared equally. So if you inherited a portfolio worth $500,000 and it grew to $700,000 by the date of separation, the $500,000 is yours alone and the $200,000 growth is shared.</p>
<h2>How Inheritance Protection Is Lost</h2>
<p>The most common way to lose inheritance protection is commingling — mixing the inheritance with family finances to the point where it can no longer be identified separately.</p>
<p>Common scenarios that cause commingling:</p>
<ul>
<li>Depositing an inheritance into a joint bank account</li>
<li>Using an inheritance to pay down the family mortgage</li>
<li>Funding renovations to the family home with inherited money</li>
<li>Transferring inherited investments into a joint investment account</li>
<li>Using inherited funds to start or invest in a jointly-operated business</li>
</ul>
<p>Once commingled, the inherited funds become family property. Tracing the money back is difficult, and courts do not always restore the exclusion, so the protection is at serious risk.</p>
<h2>How to Protect an Inheritance</h2>
<p>If you have received or expect to receive a significant inheritance, keep it clearly separate:</p>
<ul>
<li>Hold it in an account registered in your name only</li>
<li>Keep detailed records of when you received it and what it was worth</li>
<li>Do not transfer it into joint accounts or use it for shared expenses</li>
<li>If investing it, keep the investment account in your name alone</li>
<li>Document any use of the funds with a clear paper trail</li>
</ul>
<p>If you want to use inherited funds for a joint purpose — paying down the family mortgage, for example — consider a marriage agreement that records the contribution and preserves your right to reclaim it on separation.</p>
<h2>Tracing Excluded Property</h2>
<p>Even when an inheritance has been partially commingled, it may be possible to trace and recover at least some of it — if the records are good enough. Bank statements, investment account histories, and property records can sometimes allow a forensic accountant to identify the original funds and follow them through transactions.</p>
<p>Tracing is difficult and expensive, and it is not always successful. Prevention — keeping the funds separate from the start — is far more effective than trying to reconstruct the paper trail years later in litigation.</p>
<h2>Marriage Agreements and Inheritance</h2>
<p>A marriage agreement (commonly called a prenuptial or postnuptial agreement in other jurisdictions) can add a further layer of protection. It can specify that inheritances, and the growth on them, remain excluded regardless of how they are managed during the marriage. It can also document contributions of excluded property to shared assets and preserve the right to reclaim them.</p>
<p>For families where significant inheritances are anticipated — from a family business, an estate, or a trust — a marriage agreement is one of the most effective planning tools available.</p>
<h2>Getting Advice Before Separation</h2>
<p>If you are concerned about an inheritance and are in an unhappy or uncertain marriage, the time to get legal advice is before separation — not after. Decisions made in the weeks before a formal separation can affect your legal position significantly, and some steps to protect excluded property can only be taken while the relationship is intact.</p>
<p>Sea to Sky Law has 35 years of experience helping BC families protect what matters most when relationships end. If you have questions about your specific situation, we are here to help.</p>
This article is general information, not legal or tax advice. Meetings are by appointment only, by phone or secure video.