To Gift or To Loan Money For A Matrimonial Home, that is the Question
As is customary among families, parents want the best for their kids. A big part of that may be helping them buy their first home when they get married. There is a corresponding sentiment that when the marriage is short-lived and a separation occurs, the same parents who made the large gift are surprised to learn that the legal presumption (with very few exceptions) is that their son-in-law or daughter-in-law will get one half of the value of the matrimonial home regardless of who contributed to it.
That is the law in Ontario (Family Law Act))
Upon separation, while spouses each get a credit for the value of a property they bring into a marriage and are also able to exclude the value of gifts or inheritance from a third party received during the marriage, these two protections of the law are not available when the money, whether it’s a gift before or during the marriage, finds its way into a matrimonial home.
Let’s take an example. Bobby and Sally are engaged to be married or have just gotten married. Bobby’s parents are thrilled. Sally is their dream daughter-in-law. They have always wanted to help their son out so they give him $100,000.00 gift towards the purchase of his family home. The happy couple moves into the home. Unfortunately, only five years later, Sally announces she wants a divorce and wishes to separate.
What Happens With The Matrimonial Home When Couples Separate?
Sally, regardless of the fact that she initiated the separation, will receive one half of the value of the matrimonial home and there will be no credit to Bobby or his parents for the gift they made to the purchase of the property.
Protect Your Matrimonial Home At The End Of The Marriage
In order for Bobby’s parents to ensure that one half of their gift of $100,000.00 didn’t just find its way into the hands of their departing daughter-in-law, Bobby’s parents should consider one of the following ways to protect themselves if their true intention was not to make a gift to both their son and his wife:
- They should loan Bobby the money and place a mortgage on the property. Sally would need to sign the mortgage also if she was on title to the property or it was a matrimonial home at the time of the loan. This has the advantage of ensuring that if the marriage is short lived that their loan will be repaid. On the other hand, if the marriage is longer, the mortgage can be removed from the title and forgiven. There are many variations to such a mortgage that depends on many factors, including, when the mortgage is registered, whether the title is in the parties joint names and if the parties are married or intend to be married. In order that the loan be respected by the court and not set aside as a sham, it is important that the loan have the features of a true loan, such as re-payment terms and the payment of interest, whether nominal or otherwise.
- The parents can make a gift to Bobby personally and ensure that he signs a Prenup Agreement with Sally to protect that gift by ensuring that it is excluded and that he will receive it as a first entitlement on the sale of the home or on the breakdown of the marriage.
What Is The First Step To Protect Your Matrimonial Home?
In both scenarios, it is imperative to consult with a family lawyer and/or real estate lawyer as there are many complexities to consider within each of the above-proposed strategies.
While no one wants to think or consider anything that would suggest the end of a marriage, divorce and the breakdown of a marriage is regrettably very common.
The purpose of this article is to allow families to carefully consider whether the gift they wish to make to their son or daughter is one which they expect will be recovered by them or their child should the marriage break down. The short answer is that in most cases, if it has found it’s way into a matrimonial home, it will not be.
The examples given above are for illustration purposes only and are not intended as legal advice and should not be relied upon without discussing your specific case with a divorce lawyer.
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References and Footnotes
- (Family Law Act, R.S.O. 1990, c. F.3 ↩