Parents contibution to the purchase of the family home
With the rise in real estate prices in British Columbia, more and more couples are turning to their parents for help to finance the purchase of their family home. Upon the breakdown of marriage, all parties, including the parents find themselves scrambling to secure their respective interests in the family home.
Ideally, the parents would have properly documented the loan, or registered a mortgage on the family home to secure their interest. Unfortunately, parties often bypass these formalities relying on the trust in family relationships with an expectation that the couple will remain together.
The question then becomes, what happens when the marriage ends and the parent’s funds are still outstanding? For the spouse whose parents contributed, he/she will contend that the funds were a loan and should be paid out of the equity before division of the family asset. The other spouse however will argue that the funds were a gift and thus all of the equity should be divisible between the parties.
In the case J. (E.P.) v. E. (A.P.), 2010 BCSC 1121, the parties were faced with this problem. The husband’s parents advanced funds to the parties to purchase their first and second family home. The parties did not document the loan or register a mortgage. The parents merely kept a ledger of the advances. The couple barely paid anything back and neither did the parents demand such repayment. The husband argued that the funds amount to a debt which must be paid back, while the wife argued that the funds were a gift and should be included in the divisible property.
Madam Justice Boyd referred to the relevant case law and articulated the legal analysis that should be applied when determining whether the funds were a gift or a loan, which are summarized as follows:
- The trial judge must first determine the proper presumption to apply. There are two possible presumptions: the presumption of advancement, and the presumption of resulting trust. When a parent transfers property to a child without consideration, and the child is a minor, the presumption of advancement applies. This means the transfer is presumed a gift. However when such transfer involves an adult child, the presumption of resulting trust applies, which means it is presumed that the child holds the property in trust for his/her parent as the beneficial owner.
- Thus if the transfer was to an adult child, then the trial judge must determine whether the presumption of resulting trust is rebutted by weighing all of the evidence to determine whether the parent’s actual intent was a loan or a gift. The following factors should be applied to the evidence to determine intent:
- 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 has been 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.
Madam Justice Boyd applied the above factors to the evidence and found that the presumption of resulting trust was successfully rebutted by the wife and found that it was more likely than not that the funds advanced to the parties was a gift or an advance on inheritance, rather than a loan. As such, the entire equity of the family home, including the portion of funds advanced by the parents were subject to division between the parties.
If you have any questions regarding division of assets or advances from parents or third parties towards acquisition of family assets, please call Cohen Buchan Edwards to book an appointment