Excluded Property in Family Law
Divorces and separations are often fraught with emotional distress and financial complexities.
One of the most challenging aspects of this process in Ontario is the division of property.
A key component of this is understanding the concept of 'excluded property'. Excluded property refers to certain types of property that are not included in the net family property calculation, which is the method used to divide property between spouses during a divorce or separation.
To navigate through this complex process and protect your assets, it's crucial to understand which types of property can be classified as excluded property.
Gifts and Inheritances
A major category of excluded property is gifts and inheritances. These are not incorporated into the net family property calculation, but there are conditions that apply. The gift or inheritance must have been received by a spouse from a third party (other than the other spouse) after the date of marriage. It's also important to note that it is not the value of the gift or inheritance on the date it is received that is excluded, but the value on the valuation date. If the gift has been spent partially, only the remaining amount as of the valuation date is excluded. This is a critical point to remember when calculating the value of excluded property.
Damages and Life Insurance Proceeds
Another significant category of excluded property is damages awarded from a lawsuit for personal injury, nervous shock, mental distress, or loss of guidance, care and companionship. These damages are excluded from the net family property, even if the case is settled before trial. However, damages for loss of income are not excluded. Similarly, both the proceeds and the right to the proceeds of a life insurance policy are considered excluded property for the purposes of equalization. Understanding these nuances can significantly influence the outcome of your property division during a divorce or separation.
Tracing and Contractually Excluded Property
Tracing is a process that refers to property that can be traced back to the categories of exclusions mentioned above. For instance, if a spouse uses the income from a gift to acquire another property, that property also becomes an excluded property. Accurate accounting records and supporting documentation are essential to successfully trace the origin of certain property and establish its status as excluded property.
Apart from tracing, spouses can agree through a domestic contract that specific property is considered excluded. However, it's crucial to seek independent legal advice before signing such a contract to ensure its enforceability in court. This can be an effective strategy to protect certain assets and establish a mutually beneficial agreement.
Understanding Exclusion Loss
Property otherwise considered excluded can lose its exclusion status in certain circumstances. This can happen if the title to the property is transferred to the other spouse, the excluded money is deposited into a joint account, or the property is invested in the matrimonial home. These situations can complicate the property division process, and it's crucial to be aware of them to avoid any potential loss of exclusion.
The Onus of Proof
It's important to note that the spouse claiming the exclusion is responsible for proofing the excluded property. Therefore, the spouse should be prepared to have sufficient backup documentation to support the exclusion claim. This could include receipts, bank statements, or other relevant documents that prove the value of the excluded property.
Conclusion
The process of property division during a divorce or separation in Ontario can be a complex and overwhelming task. However, by understanding the intricacies of excluded property in Ontario's Family Law, you can navigate this challenging process with more confidence. It's always advisable to seek professional legal counsel to help you through these complexities and ensure a fair division of assets. With the right knowledge, preparation, and guidance, you can secure a fair outcome and protect your assets effectively.
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