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GIFT vs LOAN – How money from parents and grandparents may be treated under Ontario Family Law

Angela Princewill

January 13, 2021
Is it a gift or is it a loan? That is a question that we often grapple with in our family law practice.
A typical scenario is Jane and John are married and want to buy a home. Jane and John have both saved up some money for their down payment but unfortunately, not enough. Jane’s grandparents so kindly transfer $50,000 to Jane and John’s joint bank account and now they have enough for the downpayment and both are super excited to finally be able to purchase that dream home. All is right and well in the universe, until it isn’t.
Jane and John decide to call it quits and now must equalize their net family properties. Jane’s grandparents want their $50,000 back (or at least so says Jane) but John refuses, saying the $50,000 was a gift to him and Jane. Therein lies the problem! John has $25,000 at stake. He feels that the money really wouldn’t go back to Jane’s grandparents and is essentially Jane taking more than she is entitled to, in fact, he thinks, as a matter of principle, it is just wrong to ask for a gift to be repaid. Jane, of course, feels John is being ungrateful. Her grandparents simply helped them achieve their goal at the time. They have now accrued significant equity in their home so why shouldn’t her grandparents get their money back? She always understood it was a loan but even if it’s a gift, it’s her grandparents and her gift, right?  If John isn’t being greedy, why can’t he just repay her grandparents and keep the equity he has accrued which by the way they never would have been able to get without her grandparent’s help.
As you can see neither John nor Jane is wrong. Their respective positions make sense. It truly does. However, the legal question remains. How does it get resolved? Simple. The intention of the grandparents at the time of giving them the $50,000 is what counts. That’s it. Not what Jane thought, not what John thought, but what the grandparents themselves intended. If Jane’s grandparents expected to be repaid, then it is a loan if they didn’t, then it’s a gift. I wish the analysis ended there though, but it doesn’t. That’s the nature of the law.
Even though Jane’s grandparents may have intended for the $50,000 to be paid back, if the court believes that the loan is not likely to be repaid, or is unlikely to be repaid in full, the courts can discount the loan, all the way to $0. What do I mean? t means, based on the facts of the case, the courts can decide that only half of the loan is likely to be paid back and so the court can discount the loan by 50% thereby allowing only a deduction of $25,000 from the NFP calculations. The court can also find that the entire loan is not likely to be repaid, in which case, the entire loan will be discounted to $0.
The law generally does not presume a gift, where money is transferred by a parent or grandparent to an adult child. So in this case, John would have the burden to prove that the transfer to Jane was a gift.
If you’re a parent or grandparent making a loan, what are some steps you can take to ensure that your intentions are respected by the courts?
  1. Prepare a loan agreement
  2. Include interest on the loan
  3. Include a loan repayment date.
  4. Consider registering a mortgage to secure the loan
  5. Provide for periodic repayment of the loan
  6. Even if periodic payments are missed, document demands for loan repayment.
As you can see, while the true test is the intention of the parents or grandparents at the time of the transfer, events after the fact, such as demand for repayments are considered by the courts in determining if the money is a true loan. While monetary transactions between family members can be very informal, the legal ramifications can be serious. It is important for all parties to be on the same page and documentation of your intentions can prevent future conflicts.
For further assistance, please contact us. We are waiting to help.