MenuWith the cost of real estate, both urban and in cottage country, continuing to be inaccessible to many young couples, it is common for parents to provide financial assistance to their children to permit the purchase of a house or a cottage.
Knowing what happens to such financial contributions if the couple ends up separating helps in choosing the manner of providing the financial assistance.
In Ontario, the regime of division of property on separation is different if the couple is married or living common law.
Unmarried (Common Law) couples
There is no codified regime of division of assets for unmarried couples in Ontario. In Ontario, division of assets is based on ownership.
If this results in an unfair situation, for example, if a spouse made significant contributions to the maintenance or increase in value of the assets of the other, they have to resort to equitable principles, namely “unjust enrichment”, to address their claims of inequitable distribution of assets upon the breakdown of a relationship.
Since an important decision of the Supreme Court of Canada in 2011, unmarried spouses can now resort to the concept of “Joint Family Venture”. To be able to establish that there was unjust enrichment arising from a joint family venture, the person who is not on the title must demonstrate that a joint family venture existed and that there is a link between that person’s contribution to the joint family venture and the accumulation of wealth or assets.
If the cottage was gifted to spouse 1 only, and spouse 2 is not a registered owner, spouse 2 could make such a claim to try to receive a portion of the assets of the other, including a gifted house or cottage.
Married couples
Married couples are subject to the Family Law Act. The intention is to equally divide assets that were accumulated during the marriage. However, assets received by gifts or inheritance during the marriage are excluded and do not need to be shared with the separating spouse. Assets that were received by gift or inheritance before the marriage are treated the same way as other pre-marriage assets, such that the growth in the value during the marriage is shared.
An important exception is that if a gift is applied towards the couple’s matrimonial home, either before or during the marriage, there is no exemption, and the entire value of the gift is shared. There can be more than one matrimonial home; a cottage is usually found to be a matrimonial home.
How to provide a gift to your children
If the intention of your financial contribution is to help your offspring and their spouse, which is common, then no planning is required. You can provide a sum of money for a down payment, or make contributions to mortgage payments. If there is a separation, the separation regime that applies to the situation will follow its course.
If the intention is not to share the gift with the in-law if there is a separation, there are a few options.
The best protection is for the couple to enter into a cohabitation agreement or marriage agreement to recognize the gift and to agree that if they separate, the gift will be returned to the donor. Strict rules apply for the steps to take when negotiating such agreements.
Another vehicle is to enter into a formal loan agreement with your offspring and if possible, also with their spouse. Such family loans are not always accepted as valid loans if there was no real intention that they will be repaid.
You can maintain the title of the cottage in your name. This may result in undesirable capital gains taxes for you though.
Finally, setting up a Trust that will own the cottage where the couple can live is another option. Choosing how to set up the Trust and the beneficiaries is complex. This may not be the type of complicated setup you have in mind when deciding to help your children. The interplay of Trust laws and Family Law is extremely complex and requires collaboration between advisors who practice in these various fields.
My advice in these types of situations is to be clear about your intentions and to work with your offspring and their spouse openly and collaboratively at the time of making the financial contribution to maximize the chances of the gift ending up where you intended.