Gifts, Inheritances and Trusts in a BC Divorce

Not Everything Gets Divided

British Columbia's Family Law Act starts from equal sharing. Spouses are equally entitled to family property unless an agreement or order provides otherwise (section 81). But the Act also carves out a list of excluded property, and gifts and inheritances sit right at the centre of it. Whether an inheritance survives a divorce intact usually comes down to two things, what the statute says and what you can prove.

SiLaw Group Family Lawyers is a boutique family law and mediation firm in South Surrey. Family law is the only kind of law we practise, and we work in English and Punjabi. This page covers how gifts, inheritances and trust interests are treated when spouses separate, and what it takes in practice to keep an exclusion alive. For the full framework, see our excluded property guide, and for the wider context, our property division service page.

What Section 85 Excludes

Section 85(1) of Part 5 of the Family Law Act excludes the following from family property:

• property a spouse acquired before the relationship began;
• inheritances to a spouse;
• gifts to a spouse from a third party;
• a settlement or damages award to a spouse as compensation for injury or loss, except any part that compensates both spouses or replaces a spouse's lost income;
• money paid or payable under an insurance policy, other than a policy covering property, with the same exceptions;
• property in the categories above that is held in trust for the spouse's benefit;
• a spouse's beneficial interest in a discretionary trust that was settled by someone else and that the spouse did not contribute to;
• property derived from any of the above, or from selling any of the above.

Two features of the section matter in practice. The spouse claiming an exclusion carries the burden of demonstrating it (section 85(2)). And the exclusion can survive even where the property was transferred into the other spouse's name or into joint ownership (section 85(3)), although proving the trail after such a transfer is exactly where files get hard.

The Growth Rule Changes the Math

Excluded does not mean invisible. Under section 84(2)(g), the amount by which the value of excluded property has increased, measured from the later of the date the relationship began and the date the property was acquired, is itself family property.

So an inheritance received during the relationship is excluded at its value when it arrived, while the growth in its value afterward is generally shared. The same logic applies to property brought into the relationship. Exclusions protect starting value, not growth. Any settlement involving an inheritance has to work through both layers.

Where Trusts Fit

Trust interests are the most technical corner of this area, and the wording of the trust matters enormously. In broad strokes, based on the statute:

• A spouse's beneficial interest in a discretionary trust settled by someone else, which the spouse did not contribute to, is excluded property (section 85(1)(f)).
• Excluded property held in trust for a spouse's benefit keeps its excluded character (section 85(1)(e)).
• At the other end, property a spouse contributed to a trust can be family property where the spouse kept key powers over it, such as a vested interest, a power to transfer the property back to themselves, or a power to collapse the trust and take that property on termination (section 84(3)).

Small differences in a trust deed can change the analysis, and the interaction with the growth rule adds another layer. If a trust sits anywhere in your family's finances, put it in front of a lawyer early rather than guessing at its treatment.

Proving an Exclusion Takes Documents

Because the burden sits on the spouse claiming the exclusion (section 85(2)), evidence decides these cases. The records that carry weight are the ordinary ones people throw away:

• statements showing what you owned, and what it was worth, when the relationship began;
• estate paperwork showing what you inherited, when, and in whose name;
• bank records showing where a gift came from and whose account it landed in;
• the paper trail tracing money from arrival, through accounts, and into whatever it bought, since property derived from excluded property stays excluded (section 85(1)(g)).

Tracing is detective work. Money that moved through a joint account, paid down a mortgage, then reappeared in a renovation can still be traced, but every step needs a document. Where records are thin, exclusions shrink in the argument even when the story is true.

Keeping an Exclusion Intact

A few habits, started early, protect exclusions better than any argument later:

• keep records from the moment money or property arrives, including anything showing it was meant for you alone;
• keep inherited or gifted funds identifiable rather than blending them into the account that pays for groceries;
• get advice before big moves, such as putting an inheritance into the family home or into joint names, so you understand the trade-offs first;
• consider recording the treatment of significant gifts or inheritances in a written agreement, which is work we do regularly through separation agreements and marriage or cohabitation agreements.

Frequently Asked Questions

Is My Inheritance Family Property in BC?

An inheritance to one spouse is excluded property under section 85(1)(b). But the growth in its value during the relationship is family property under section 84(2)(g), and you must be able to prove the inheritance and follow its trail. The exclusion is real, and so is the homework.

What If I Put My Inheritance Into Our House?

The exclusion can survive a transfer into joint names or the other spouse's name (section 85(3)), but you still have to trace the money into the property with documents, and the increase in value is generally shared. These are among the most commonly disputed facts in BC property cases, which is why the paper trail matters so much.

Are Gifts From My Parents Excluded?

Gifts to a spouse from a third party are excluded under section 85(1)(b.1). The fights are rarely about the rule. They are about the facts, whether the money was a gift or a loan, and whether it was given to one spouse or to the couple. Contemporary records, even a short signed note, save enormous grief later.

Do Trust Interests Get Divided in a Divorce?

Some do and some do not. A beneficial interest in a discretionary trust settled by someone else, with no contribution from the spouse, is excluded, while property a spouse moved into a trust can remain family property where the spouse kept control over it. The trust documents decide, so review comes before conclusions.

Protect What Was Meant for You

The right time to protect an inheritance is before positions harden. The first 30 minutes with us are free, in English or Punjabi, by phone, video, or in person at Suite 201, 3108 Croydon Drive in South Surrey. Call (778) 381-9977 or Book Now for a Free Consultation.

This page is legal information, not legal advice. For advice about your own situation, speak with a lawyer.