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  • Writer's pictureJared Davies, Lawyer

A loan or a gift from the in-laws and the matrimonial home

Typically, any money put into the matrimonial home during the marriage automatically becomes family property subject to division upon separation. The matrimonial home is not subject to a deduction as of the date of marriage, so if parties do not have an agreement to the contrary, both spouses will inevitably share in each other's respective interest in the matrimonial home upon separation no matter who owned it prior. These rules can create complications when the parties’ parents become involved.

A common scenario occurs when parents of either spouse contribute financially to the matrimonial home and then later a dispute arises as to the nature of the contribution. Inevitably, the fight becomes whether the advancement was a gift or a loan. If it is a gift, then the gift will likely get “lost” in the matrimonial home and becomes marital property. If it is a loan to be repaid, then it will reduce the value of the matrimonial home and it gets factored into the division this way. In other words, in these disputes, the spouse whose parents did not advance money will prefer the advanced money to be considered a gift, not a loan, so that they can share equally in it upon separation.

In Barber v Magee, 2017 ONCA 558, the Ontario Court of Appeal reiterates that in this dispute—whether advanced money from a parent is a loan to be repaid or a gift—the concept of resulting trust is at the centre of the issue. The concept of resulting trust can be raised when a parent advances money to their children; the presumption is that it “results” back to the parent, being held in trust for the benefit of the parent, unless a gift can be proven based off the original intent of the parent who advanced the money. If a gift can be proven, the money is not declared to have been transferred for the benefit of the parent but of the child, and so the presumption has been rebutted. And if it is traced into the matrimonial home, it becomes marital property in this latter example, subject to equal division between the separating couple. This was outlined in the decision:

Neil Magee, the appellant, and Hayley Barber, the respondent, agree that the appellant's father, Ken Magee, advanced $90,414 and then $67,000 to the appellant, all of which was invested in the matrimonial home held in the appellant's name. If these advancements were loans, they are debts owed by the appellant, reducing his net family property. If they were gifts, they are included in the appellant's net family property. The appellant appeals the decision of the trial judge that these advancements were gifts.

The trial judge correctly stated the law of resulting trusts, and he applied the law correctly. The trial judge's task was to weigh all of the evidence in deciding the father's actual intention at the time of the transactions, and that is what he did: Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795 (S.C.C.), at para. 44.

Generally, there are objective indicators that can assist in determining whether an advancement is a gift or a loan: Locke v. Locke, 2000 BCSC 1300, [2000] B.C.T.C. 681 (B.C. S.C.), at para. 21; Klimm v. Klimm, 2010 ONSC 1479, [2010] O.J. No. 968 (Ont. S.C.J.), at para. 28-32; Mora v. Mora, 2011 ONSC 2965, [2011] O.J. No. 2188 (Ont. S.C.J.), at paras. 38-40. A gift is a transfer in which the absence of an expectation of repayment tends to be reflected in the absence of security, recording, payments or efforts to collect payments. A loan often involves a formal, recorded transfer in which terms are set out and in which repayment is made or sought. In evaluating whether the presumption of resulting trust has been rebutted, a trial judge will naturally look at such indicia.

Barber v Magee, 2015 ONSC 8054, the trial decision, reviewed some of the factors in deciding whether the advancement of money by a parent was a loan:

a. Whether there were any contemporaneous documents evidencing a loan;
b. Whether the manner for repayment is specified;
c. Whether there is security held for the loan;
d. Whether there are advances to one child and not others or advances on equal amounts to various children;
e. Where there has been any demand for payment before the separation of the parties;
f. Whether there has been any partial repayment; and,
g. Whether there was an expectation or likelihood of repayment.

In Seneshen v Seneshen, [2006] OJ No 2104, the court discussed other factors:

a. Whether the debts are old;
b. Whether there has been a demand for payment at any time prior to the litigation;
c. Whether the demand was motivated by the desire of the payor to reduce the monies the recipient would receive from the equalization payment; and
d. Whether the monies were advanced with no clear expectation of repayment.

Important to note that these considerations are non-exhaustive and may not be determinative, but they are a good starting point. The court is alive to the fact that a separating spouse, whose parents previously advanced money as a gift into the matrimonial home, will be inclined to act in bad faith once they know separation is imminent. Therefore, it is likely crucial to have evidence of the parent's original intention well prior to separation, in proving whether a loan was made.

Obvious takeaways? When a spouse’s parents start contributing money to the matrimonial home, it can have significant implications upon separation and the division of the matrimonial home. The spouse whose parents made the contribution will likely be inclined to argue the money was a loan. The other spouse will likely be inclined to argue it was a gift so that they can share in it. Ultimately, the original intention of the parent who made the advancement will decide this matter. There are multiple different ways this intention can be expressed, such as documentation, expressed expectations, and more.


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