Gifts vs. Loans in Matrimonial Property Division
In the current real estate market, it is becoming increasingly popular (or necessary) for young couples to rely on their parents when purchasing their first home. However, a thoughtful gesture by the parents can turn into a point of contention down the line if the couple gets a divorce. When considering matrimonial property for the purposes of division, this amount of money from the parents needs to be characterized as either a gift or a loan. This is a significant characterization because a loan will be considered a matrimonial debt and ultimately decrease the total value of the property. Conversely, a gift transfers ownership without an expectation of repayment, and as such, there is no effect on the property.
In Dagg v Wong 2018 ABQB 73, the Court sets out the analysis and factors that are relevant when considering the nature of an advancement of funds. In this matter, the wife’s parents had transferred money to the couple and there was disagreement as to whether the transfer constituted a gift or a loan. The wife asked the Court to confirm that the payments from her parents were loans and as such, direct that the outstanding amount be considered matrimonial debt. The Court provided the following summary of law when determining whether an advance of funds is a loan or a gift:
[87] A presumption of resulting trust arises when there is a gratuitous transfer of property from a parent to an adult child. Because the adult child gave no value for the property, the child is under an obligation to return it to the original owner. When a transfer is challenged, the onus is on the transferee to demonstrate, on a balance of probabilities, that a gift was intended by the transferor at the time of the transfer: Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795 (S.C.C.).
[88] The approach in Pecore has been adopted by courts in determining whether money advanced by a parent to a couple to help fund the down payment of their matrimonial home was a gift or a loan: Barber v. Magee, 2017 ONCA 558, [2017] O.J. No. 3409 (Ont. C.A.), M. (J.A.) v. M. (D.L.), 2008 NBCA 2, 289 D.L.R. (4th) 37 (N.B. C.A.).
[89] Certain objective factors may be relevant in determining whether an advancement is a gift or a loan, including: any contemporaneous documents; whether the manner for repayment was specified; whether there was security for the loan; whether there was any demand for payment before separation of the parties; whether there was any partial repayment; and whether there was any expectation or likelihood of repayment: Locke v. Locke, 2000 BCSC 1300 (B.C. S.C.) at para 21, [2000] B.C.T.C. 681 (B.C. S.C.).
On the basis of the considerations listed in paragraph 89, the Court held that the money advanced by the parents were loans to be shared as matrimonial debt.