Family

Document loans, gifts to married family members to avoid litigation

By AdvocateDaily.com Staff

Family members who advance money to married relatives should be explicit about whether it was intended as a gift or a loan, Toronto family lawyer Gary Joseph tells AdvocateDaily.com.

A recent Ontario Court of Appeal decision upheld a motion judge’s finding that a mortgage placed by the parents on their married daughter’s home must be removed from the net family property calculation because the money was actually advanced to the couple as a gift.

Joseph, managing partner with MacDonald & Partners LLP, says he sees similar disputes over the characterization of funds “all the time” in his practice.

“Parents of one spouse provide a mortgage or help the couple buy a home, but when the marriage dissolves, the child claims it was only meant for one of them, not both,” he says. “When parents, in-laws, grandparents, or anyone else advances money, they’ve got to clearly indicate whether it’s a gift or a loan, and who it is intended for.”

Joseph, who was not involved in the matter and comments generally, says the appeal court case shows that judges will look for documentation and evidence of payments and interest charged when determining the true nature of the transaction.

The couple at the heart of it bought the marital home in 2000 but hit financial trouble in 2004 when the husband’s employment conditions were altered. The wife's parents stepped in to help, agreeing to pay off the existing mortgage, which was discharged in February 2005.

However, later that year, the parents registered their own mortgage on the home, an action that shocked the husband, states the decision. He testified he only agreed to sign the mortgage documents in order to keep his wife and in-laws happy but claimed he was relying on his spouse’s assurances that the house would always be theirs.

A judge hearing a summary judgment motion sided with the husband, rejecting the parents’ evidence that the transfers were loans, and the appeal court panel agreed.

“It was open to the motion judge to make those findings of fact, and this court ought not to interfere with them unless the appellants can establish that they represent palpable and overriding error,” the unanimous panel ruled, noting that the subsequent interactions between the parties “strongly suggest that all of the financial assistance provided by the appellants was intended to be by way of gifts and not loans.”

“For example, there was never any request for any form of security documentation with respect to any of this financial assistance. There is also the salient fact that, after the conventional mortgage was paid off, the appellants, their daughter, and the respondent, all went out for a celebration of the fact that the daughter and the respondent were ‘mortgage free,’” the appeal court concluded. “This event is inconsistent with the appellants’ position that the respondent and their daughter had simply replaced one mortgage for another, even if the latter mortgage was much more favourable in its terms.”

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