Gift or Loan?
There are often disputes in family law over whether money advanced by a parent to a spouse was gifted or loaned. The party that received the money will claim that the funds were loaned and are thus owing to the parent, while his or her spouse will maintain that the money was gifted and as such cannot be treated as an outstanding debt.
This was the issue the court recently addressed in Barber v. Magee, 2015 ONSC 8054 (“Barber”). In Barber, the husband’s father gave him over $90,000.00 to help him buy the matrimonial home. A further $67,000.00 was advanced by the father to the son during the marriage to help him pay down the mortgage and other household expenses. When the son separated from his wife, he claimed that the money was due and owing to his father. Alternatively, he suggested that the father had acquired a trust interest in the home as a result of the financial contribution.
The court began its analysis by acknowledging that the starting point is that the parent is presumed not to have intended a gift if the transfer was gratuitous. In other words, the presumption is that the adult child is holding the money advanced in trust for the parent. The court opined that the following factors must then be reviewed when determining whether a gift or loan was intended:
1. Whether there was any contemporaneous documents evidencing a loan
2. Whether the manner for repayment is specified
3. Whether there is security held for the loan
4. Whether there are advances to one child and not others or advances on equal amounts to children
5. Whether there was any repayment
6. Whether there is an expectation of repayment
In summary, the more evidence of a real commercial type loan, the better.
In reviewing the evidence in this case, the court found that none of the above factors were present. The presumption of a trust was therefore rebutted and the court deemed that the money advanced to the son was gifted to him. The net result is that the wife received half the money.
The important take away lesson is to make sure that any loans or transfers of money to family members are properly documented, especially if a repayment is expected. Ideally, the other spouse would also sign an acknowledgement of a loan with independent legal advice. As a family lawyer in Aurora, I have been involved in drafting numerous such contractual agreements.
Thanks for reading,