“Both parties rely on the decision of Townshend v. Townshend, 2012 ONCA 868 (CanLII), where a $25,000 gift to the husband was received and deposited into a joint account in 2001, and subsequently transferred into another joint account in September 2004. The parties separated about 9 months later in May of 2005, and at the time there was $31,000 in that second joint account. The tracing for the first 3 years was conceded, as the wife acknowledged that the $25,000 gift went into the second joint account. So the sole issue was whether the $25,000 could be traced to the $31,000 over a period of 9 months. The wife submitted that the husband could not prove it was the same money because of a lack of disclosure. The Court of Appeal characterized that as an “overly formulistic approach” and held that a “compelling inference arises” despite the lack of evidence, and allowed the husband a $12,500 exclusion.
The usual approach for tracing monies in investment accounts has been referred to in the case law as the “pro rata method”: see Goodyer v. Goodyer, 1999 CanLII 20759 (ON SCDC), [1999] O.J. No. 29 (Ont. Gen. Div.) at paragraphs 69 and 70, and Wolfe v. Wolfe, [2003] O.J. No. 3386 (Ont. S.C.J.) at paragraph 53. What this means is that a calculation is made of the ratio of exempt inheritance funds to the non-exempt funds that have been deposited into the account and that ratio is applied to the funds remaining in the account on the date of separation (Wolfe at paragraph 54). As suggested in Townshend, this approach is subject to being relaxed when common sense and a reasonable balance of probabilities calls for a different result: see Henderson v. Casson, 2014 ONSC 720 (CanLII), 2014 O.J. No. 519 (Ont. S.C.J.) at paragraphs 90 and 91.
After the inheritance or the part of it that remains in the account has been traced, the amount of the exclusion is then to be halved when dealing with a joint account. The reason is that one half of the gift or inheritance loses its exclusionary character as it is presumed to be gifted to the other spouse. The halving after tracing was the approach used in both Townshend and Goodyer. While there are exceptions to that result (for example if the joint account was merely used as a conduit: see Barrett v. Barrett, [2014] O.J. No. 540 (Ont. S.C.J.)), it is accepted by the wife in this case. Her position is that she is only seeking one half of the total inheritance as an exclusion, or $23,478.60.”
Finch v. Finch, 2018 ONSC 5575 (CanLII) at 35-37