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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A Journey of Revenge

A Supreme Court judge in New York recently referred to a divorce litigant as “despicable”. What could possibly garner this strong reaction from an otherwise cool, calm and collected judicial official?

Just before the litigant’s wife filed for divorce, her husband decided to come clean with the tax authorities and filed amended tax returns for 2004 to 2007, disclosing an additional $1.6 million of income from his contracting business.

As a result, he owed the government $1.2 million in taxes, a sum that was coincidentally equivalent to the value of the family home. He also made it very easy for the tax authorities by attaching to his amended tax returns details of the assets he owned, the bank who held the mortgage on the family home, and other pertinent collection information.

The wife was shocked and horrified because the law in New York, as in many other jurisdictions, including British Columbia, provides that a debt incurred during the marriage for the family will be a family debt that is sharable between spouses. Unpaid income tax owed on family income is considered family debt.

The couple had been married for almost fifteen years and had four children.

The New York Supreme Court considered the husband’s evidence of the large family debt and determined that the husband had made the disclosure, not because he was being audited or investigated, but because he wished to cause as much pain as possible to his wife.

The trial judge found that his conduct was malicious and revenge was his motive.

Unfortunately, for this husband, his plan backfired, as the court held that given the egregious circumstances, he would be solely responsible for the debt.

Confucius once said, “Before you embark on a journey of revenge, dig two graves.”

Lawdiva aka Georgialee Lang