Is it a Loan or a Gift?

BarristerA classic problem that frequently occurs in family law disputes is whether the funds given to a married adult child are a gift or a loan. In Rivas v. Milionis 2018 ONCA 845 the Ontario Court of Appeal upheld a judge’s order that found that a mortgage placed by parents on their married daughter’s home did not secure a legitimate debt to the parents, as the monies advanced to the couple were a gift.

The couple purchased their family home in 2000, financing the purchase with a bank mortgage. In 2004 they encountered financial problems and the wife’s parents provided financial assistance and later agreed to pay off their mortgage, thus alleviating their tight financial circumstances. Discussions between the wife and her parents took place in 2004. The mortgage was discharged in February 2005 and in July 2005 the wife’s parents placed a new mortgage on the family home.

The husband testified that he was baffled when his wife’s parents asked them to execute a mortgage in their favour, but he realized that resisting their overture would cause conflict in the family, so he signed the mortgage documents. He also said that he cooperated to keep his wife happy and relied on her assurance that the house would always be theirs.

All was well until ten years later, when the couple separated and the wife’s parents sought to enforce their mortgage security. The court referred to the presumption of a resulting trust in a situation where there is a transfer of property from a parent to an adult child. The presumption is that property transferred from a parent to an adult child is not a gift but is held in trust by the adult child for his or her parent. Pecore v. Pecore, 2007 SCC 17. That presumption can, of course, be rebutted.

It is noteworthy that the court at first instance did not hear oral evidence, thus, none of the parties were cross-examined. The judge ruled:

“I do not accept Tasos’ [the wife’s father] evidence that the many transfers of money were loans. He stated that each of the transfers constituted a loan however, as noted earlier, there was no evidence that the parents at the very least told their daughter and son-in-law that those transfers were loans or that he communicated the loan terms of each transfer to them. I accept the husband’s evidence that the parents never suggested to him until June or July 2005 that the transfers made from 2000 to 2005 were loans.”

An important factor in the judge’s decision was the “mortgage-freedom” celebration that the parties testified about when the conventional mortgage was paid off by the wife’s parents in 2005.

Parents who generously support their adult children must understand that it is too late after the fact to suggest that monies provided are a loan, unless there is evidence, such as a promissory note, signed by the parties at the time of the advance of funds, with each party having independent legal advice.

Lawdiva aka Georgialee Lang

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