Family Loans vs. Family Gifts
Married couples often receive money from one or both sets of families (typically parents) throughout their marriage. Once the couple separates and are negotiating the division of their property, the claim is inevitably made that those funds are either exempt from presumptive 50/50 division for being a gift to one party alone (rather than the couple/family collectively), or a loan to one or both parties to be repaid from the overall matrimonial assets prior to division as between the Husband and Wife.
Often, the married couple’s recollections as to the nature of the advance differ, and documentary evidence is often scant.
The Honourable Justice Fitzpatrick characterized the recent case of Barber v. Magee, 2015 CarswellOnt 19620 (Ont. S.C.J.) as a “cautionary tale”, determining that there was simply no evidence that monies advanced by the Husband’s father were intended to be a loan, as opposed to a gift to the couple collectively. In coming to this determination, he reviewed the leading cases in this area: Byrne v. Byrne, 57 R.F.L. (7th) 215 (BCSC), Kuo v. Chu, 2009 CarswellBC 2522 (BCCA) and Locke v. Locke, 2000 CarswellBC 1856 (BCSC).
Factors the courts consider in determining whether an advance of money was intended to be a gift or a loan include the following:
- Whether there were any contemporaneous documents evidencing a loan;
- Whether the manner for repayment is specified;
- Whether there is security held for the loan;
- Whether there are advances to one child and not others or advances of equal amounts to various children;
- Whether there has been any demand for payment before the separation of the parties;
- Whether there has been any partial repayment; and
- Whether there was an expectation or likelihood of repayment.
This is a relatively complex area of law. For instance, even where there is evidence to suggest an advance of funds was intended to be a gift to one party (rather than the couple/family, collectively), this characterization leads to further legal questions such as whether the funds were then placed into a joint asset and if so, whether the funds were held jointly for more than just a short, transitionary holding period. If the gift to one party was placed in joint names, the general rule found in Harrower v. Jackson is that half of that party’s property exemption is lost (i.e. the other half is divided, pursuant to the Matrimonial Property Act, with the other spouse).
Although not particularly romantic to plan ahead for the event of divorce, this area of law is important to be aware of when entering into a marriage, because evidence of intent cannot be created after the fact.