Under the Ontario Family Law Act’s basic principles, an inheritance received by one spouse during the marriage, and still owned at the separation/valuation date, is excluded from his or her Net Family Property (NFP) calculation.
But what happens if those funds are put in a joint account with the other spouse, and then co-mingled for use on family purchases – like a Disney World vacation?
This was one of the issues in a recent case called O’Connor v. O’Connor. The couple separated after a 29-year marriage. They had the typical issues for the court still to resolve: equalization, ongoing and retroactive spousal support, and the sharing of post-secondary educational expenses for their children.
But one of the questions in the mix, was how to deal with about US$26,000 that the wife had inherited during the marriage, from her aunt in California.
She had originally placed the inheritance money into a Royal Bank of Canada (RBC) account bearing her name alone. But later, on the advice of her father, she added the husband’s name as well. This was to cover off some succession-planning, since it would allow the husband to manage the account if something happened to her.
Although it remained set up that way throughout the marriage, the husband never did deal with the RBC account or deposit money into it. Rather, according to the evidence, it was always controlled by the wife – who took care of all the family finances during the relationship.
With this in mind, the wife claimed the money RBC account should still be considered excluded property when it came time to calculate her NFP.
In contrast, the husband claimed the inheritance funds were co-mingled with family funds, and were therefore no longer eligible to be excluded from the wife’s NFP. He pointed to the fact that on at least one occasion, the RBC account was used to fund a family trip to Disney World.
The court considered the Ontario law on joint bank accounts in the marital context, under s. 14 of the Family Law Act and what is know as the “presumption of resulting trust”.
The net effect was this: Since the wife transferred the money into joint account for no consideration, it was presumed that both she and the husband held that asset for the wife’s benefit alone. It was up to the husband to rebut that presumption. This meant establishing, on the balance of probabilities, that when the wife added his joint name to the RBC account, it was her intent to gift him half of the money. The standard of proof required him to bring “clear, convincing and cogent” evidence.
The court held the husband failed to satisfy this onus.
Relying on a recent Ontario Court of Appeal decision called MacIntyre v. Winter, the court noted that “equity presumes bargains, not gifts”. Here, the evidence showed both spouses knew all along that the wife’s intent was that this account remained hers alone. This conclusion was bolstered by the fact that when it came time to buy himself a new home post-separation, the husband did not list the joint account on his mortgage application. Further, the mere fact that the wife took steps to protect the right of survivorship did not – without more – turn the inherited funds into a gift.
As for the alleged co-mingling of funds: The court rejected this argument. The mere fact that the wife used the funds to pay for a family vacation did not strip them of their “excluded property” status. Instead, it merely diminished the balance remaining in the account at the date of separation.
Full text of the decisions:
O’Connor v. O’Connor, 2022 ONSC 3482
MacIntyre v. Winter, 2021 ONCA 516