When Does a Financial Contribution From a Family Member Amount to a Loan Rather Than a Gift?
It is quite common for adult children to receive financial contributions from parents as they embark on adulthood. Sometimes these generous financial contributions continue from parents even after their adult children have families of their own. In family law disputes, as parties seek to separate their assets, the characterization of these familial financial contributions as either a gift or a loan can result in significant differences in the financial position of the parties.
In Dhariwal v Dhariwal, 2015 ABQB 50, the parties were married for 6 years. During their relationship, both parties were students and lived with the husband’s parents. However, during a practicum, the husband briefly relocated to Kelowna. The parties purchased a condo in Kelowna for the husband to live in while he completed his practicum. The condo was purchased with the parties contributing $10,000 towards the down payment, while the husband’s parents contributed the remaining $180,000. Throughout the parties’ marriage, the husband’s parents were exceptionally generous, providing free room and board while the parties were in Alberta, paying for clothes, travel, education expenses, and providing the wife with an allowance while she was a student. At issue was whether the husband’s parents $180,000 contribution to the Kelowna Condo was a loan, with the expectation of repayment, or a gift.
The significance of the court making a finding that the contribution amounted to a loan would therefore reduce the matrimonial assets by the amount outstanding on the loan. This would result in a $180,000 reduction in the assets to be split by the parties. If, on the other hand, the Court found that the contribution was a gift to the parties, the assets to be divided by the parties would include the total value of the Condo at the time of trial.
The Court considered the following factors to determine whether the financial contribution amounted to a loan or a gift:
- Whether there were any contemporaneous documents evidencing a loan;
- Whether the manner for repayment is specified;
- Whether there is security held for the loan;
- Whether there are advances to one child and not others, or advances of unequal amounts to various children;
- Whether there was any demand for payment before the separation of the parties;
- Whether there has been any partial repayment; and
- Whether there was any expectation, or likelihood, of repayment.
In this case, there were no contemporaneous documents to evidence a loan. Additionally, the only manner for repayment advanced was specified through testimony of the husband’s family. There was no security held for the loan, and the property was registered jointly in the names of the husband and wife only. The Court noted the history of the husband’s parent’s considerable generosity towards their children and the fact that there had been no partial repayment on the loan in the seven years since the purchase of the condo. Although there was conflicting evidence regarding the demands for payment, and the expectation or likelihood of payment, the Court concluded that the funds advanced were a gift and not a loan. Therefore, the divisible family property included the Kelowna Condo with the $180,000 contribution by the husband’s parents.
If you are seeking assistance in dividing family assets, contact the experienced family law lawyers at Vogel LLP today!