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Be Careful When Loaning Money So That Children Can Buy a Home

by Daniel Gloade on January 4, 2016

This appears to be the message in the decision of Barber v Magee, 2015 ONSC 8054.  This was a matrimonial dispute.  The Husband’s Parents gave Husband $90 000.00 for the down payment of the matrimonial home and a further $67 000.00 to pay household expenses.  The issue was whether this financial transfer was a gift or a loan.  The key issue was the intention of the Parents when they transferred the money.

The Honourable Mr. Justice Fitzpatrick examined the case law. He held that if the parents transfer property to their children then it is assumed that the children are holding the property in trust for the benefit of the parents.  A party can bring evidence to prove, on a balance of probabilities, that the property transfer was a gift.  It belongs to the children completely.

When examining whether the money is a gift or a loan, he listed the following relevant factors:

  • 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 on equal amounts to various children;
  • Where there has been any demand for payment before the separation of the parties;
  • Whether there has been any partial repayment;
  • Whether there was an expectation or likelihood of repayment;
  • Whether the payor of the funds financially need the money returned.

After examining the facts of the case, Justice Fitzpatrick held that the money transferred was a gift and not a loan.  He added that if the Parent’s Father really wanted to give a loan, then he should have had legal documents drawn up and register a mortgage on the house.

Why is this issue important?

If the funds were a loan, the Husband could record these funds as a debt.  This would substantially reduce the value of the property he accumulated during the marriage.  The less property he has, the more likely the equalization of net family property would benefit him.

If the funds were a gift, then the funds are not considered to be property accumulated during the marriage.  There would be no change in the Husband’s property.  It doesn’t count.

In this case the funds were used for the purchase of the matrimonial home, however.  The matrimonial home is the exception to the rule.  The Husband had to record the house as an asset (which was increased in value, in part, due to theParent’s funds.).  The Husband was not entitled to record the money as a debt.  The value of the Husband’s property that he accumulated during the marriage increased substantially.  The greater the value of a party’s property, the less he or she will benefit from the equalization of the net family property.

You can read the decision here.

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