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The Conundrum Of Inter-Family Advances When A Marriage Breaks Down

Back in the day, the gifting of assets from wealthy parents to marriageable children followed a pretty typical route: child receives home or lump sum, child marries, and everyone lives happily ever after.

Nowadays, even the middle classes are providing inter-family advances with a view toward helping adult children get marriage off to a prosperous start. But with divorce now commonplace, families need to take basic legal precautions if they want to safeguard sizeable assets from being equally divided when a marriage breaks down.

Gift Or Loan?

The recent Ontario Superior Court case of Barber v. Magee illustrates the point. Neil Magee’s parents had transferred him over $140,000 for the purchase and maintenance of a matrimonial home. The home was purchased and placed in Magee’s name alone – a fact that wife Haley Barbara claims she was ignorant of at the time.

When Magee and Barbara later went their separate ways, Magee sold the home and transferred the funds back to his parents. With no equity in the home to share, Barbara walked away empty handed and subsequently took the case to court.

At trial, Magee claimed that the funds were not a gift, but a loan from his parents. But in reviewing the case, Justice Dale Fitzpatrick noted the complete lack of documentation – no loan papers, no details on interest rates or repayment schedule, no security, not even a verbal agreement to support Magee’s claim that the funds were expressly intended as a loan and not as a gift.

A final damning tidbit surfaced when bank records revealed that in 2010, the parents subsequently transferred back sums totaling upward of $200,000 to Magee – not long after the 2009 sale of the home.

Justice Fitzpatrick concluded: “This appears to be the return of the monies repaid to the Respondent.”

Lessons Learned

  1. If parents make sizable inter-family advances, but want these to be conditional on the continuation of the child’s marriage, proper legal protections and supporting documentation must be in place.
  2. Get legal advice from a lawyer before making a sizeable inter-family transfer. A few hundred dollars spent in legal fees could end up saving hundreds of thousands later on and untold grief down the road if things become rocky.

Need advice on safeguarding assets before a marriage?

Dividing property during a separation or divorce?

Call us up.

Our lawyers can help protect your interests.

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