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Most couples have a joint account from which to pay for household expenses, such as mortgage payments, insurance premiums and utilities. It’s not unusual for both spouses to deposit their entire pay into the same account. On occasion, spouses who receive inheritances or gift funds also deposit the money into the joint account. Upon separation, what happens to the funds?
In Ontario, the law mandates that gifts or inheritances (other than a matrimonial home) received by one spouse from third parties during the marriage are excluded from property division (legally referred to as equalization).
One school of thought is that the joint account belongs equally to both spouses, if both of them have unencumbered access to the money. As such, once the funds are deposited into the joint account, they are now owned jointly by the two spouses.
However, the story doesn’t end there. The law further deems (because the funds were deposited into a joint account) that the spouse who received the funds in the first place gave half of that money to the other spouse. As such, half of the amount loses its exclusionary character, while the other half remains as a gift from a third party to the original recipient.
In the recent decision of Townshend v. Townshend by the Court of Appeal, the husband received a gift of $25,000. The wife deposited the cheque (made payable exclusively to the husband) into their joint account. The Court of Appeal ruled that, as there was $31,000 in that joint account on the date of separation, the inference must be made that the $25,000 gift constituted part of the balance. Following the law, the Court of Appeal ruled that the husband was entitled to exclude half of the gift, or $12,500.
While I am not surprised with the outcome of Townshend, I could not help but think what would have happened if the balance in the joint account had been far less than $25,000? Would the husband still have been entitled to exclude his $12,500?