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Family Law: Debt or Loan?

At the National Family Law Conference Stacie R. Glazman, LL.M., C.S., CBV, presented a paper entitled “Thanks for the Money, Mom and Dad.  Do I have to Pay You Back?”

Ms. Glazman is an excellent speaker (and author) so the topics stuck with me.  Her paper, and presentation, addressed an issue that can become contentious: if a parent advances money to their married child:

  • is the money a gift?
  • is the money a loan?
  • is the money a gift to only their child (and not the spouse)?
  • is the money a loan to only their child (and not the spouse)?

Often becasue these gifts/loans are given in the context of family relationships, they are not documented and recorded with the same level of detail that business transactions are.  When parties separate, and money has to be separated, and disputes often arise as to who gets the benefit of the money from mom and dad, or who has to pay the money back to mom and dad.

In 2007 the Supreme Court of Canada released a decision dealing with the loan vs. gift issue, in an estate context.  In the Pecore v. Pecore decision, the court found that the presupmtion of advancement is not applicable to transfers between parents and adult independent children.  Previously, the presumption of advancement had applied to property transfers between parents and independent adult children where no consideration was given.  The presumption of advancement meaning: a presumption that the transfer was intended as a gift.  Baesd on the Pecore decision, the presumption is that of a resulting trust (i.e. a “loan”).

Ms. Glazman summarizes the test as follows at page 8 of her paper:

  1. Determine if the presumption of resulting trust applies because the transfer is gratuitous and the recipient is obliged to return it;
  2. The onus is on the person claiming “gift” to show that a gift was intended;
  3. Look to the evidence as to the transferor’s actual intention to see if it is sufficient to rebut the presumption on a balance of probabilities.
How does this apply to family law?

Many courts across Canada have found that the law in Pecore has been applied to family law cases where there are “gift vs. loan” disputes.  For example, the recent case of T.S. v. M.S. and J.P provides a useful summary of the application of the Pecore decision to family law in British Columbia at paragraph 35, citing the case of Hawley v. Paradis:

29        … The recent cases of Ng2008 BCSC 172 (CanLII), [2008 BCSC 172 ] and Krupa v. Krupa, 2008 BCSC 414 (CanLII), 2008 BCSC 414 [Krupa], have both considered the principles in Pecore within the context of transfers of money or property made by a parent to a child within a dispute over the division of marital property. Ng and Krupa are instructive in this case. In Ng at para. 37, Garson J. held that, according to Pecore, “a presumption of advancement as between parents and children will only arise in cases where the child is a minor”. She further stated that the presumption of a resulting trust had been rebutted in that case. In my view, Mr. Paradis’ contention that Garson J. thought other conclusions could be reached regarding the presumption of advancement is untenable. Rather, it appears clear to me that she was indicating that she was bound to follow the law as set out by the majority in Pecore, as am I. In Krupa, Madam Justice Ross concluded that the presumption of advancement with respect to gratuitous transfers from a parent to a child is limited to transfers involving minor children. She also stated at para. 78, “There is a presumption of resulting trust with respect to gratuitous transfers from a parent to an adult child.” Ross J. further considered D.L.M.2008 NBCA 2 (CanLII), [2008 NBCA 2, 289 D.L.R. (4th) 37] and held that the factors in Locke continue to be relevant to ascertaining intent when considering whether a transfer made by a parent to an adult child is a loan or a gift.

30        Based on the case law presented to me, I conclude:

  1. that the presumption of advancement no longer applies between adult children and their parents;
  2. that as between adult children and their parents, the presumption is a resulting trust when the parents make gratuitous transfers to children;
  3. that the court must consider all of the evidence in determining whether the parent intended the transfer as a gift or a loan;
  4. that the factors considered in Wiens and Locke will assist the court in determining whether the advance was a loan or a gift.

What evidence and factors will the court consider?

The court may consider a number of factors in making the determination if a transfer was a gift or a loan.

The factors set out in the Locke case, are:

  • Whether there are any documents showing that the transfer was a loan;
  • If a manner of repayment is specified;
  • If security is held for the loan;
  • If there are advances to one child and not to others (i.e. if this is a pattern of giving);
  • If there was a demand for payment prior to separation;
  • If there has been some form of repayment; and
  • If there is a likelihood or expectation of repayment.

The evidence in each case will have an important impact on determining if the transfer was a gift or loan.

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