Parents Who Gift "Home Sweet Home": Banaszek Family Law explains how to protect a down-payment gift from equal division

Let’s face it… home ownership is an expensive and serious undertaking. For couples ready to purchase a house together, the intermingling of financial resources is almost certainly a must. In addition to pooling your life savings with your life partner to come up with an acceptable down-payment, many couples (eagerly) accept parental involvement (i.e. a down-payment gift) to make their home ownership dreams come true.

The gifting of down-payments by parents to their millennial children is on the rise as home ownership becomes increasingly unattainable by historical standards in many Canadian cities. Unsurprisingly, down-payment gifts have doubled from 7% in 2000 to 15% for homes purchased between 2014 and 2016 (Mortgage Professionals Canada). There are legal implications to consider when monetary gifts are poured into a down-payment for a soon-to-be married couple’s home, especially since a substantial amount of Canadian marriages end in divorce.

Dividing the matrimonial home upon divorce in Alberta

In the event of separation and divorce, both spouses will be entitled to half of the home’s value after the mortgage and other encumbrances are accounted for, even if part of the down-payment was a gift from one of the spouse’s parent(s).

[Unequal financial contributions between spouses to attain their home can also have significant legal implications if the parties separate in the future — Stay tuned for a future blog post on this issue!]

If it is your intention to protect the down-payment and ensure that it is either paid back to your parents or remains a gift that your spouse cannot claim entitlement to, steps MUST be taken to legally protect the intention of the gift. Although gifts received from third parties to one spouse alone are often exempt from the presumptive equal distribution under the Alberta Matrimonial Property Act, the matrimonial home is treated differently. The matrimonial home is an exception in family law, and division of the value of the home depends on the circumstances surrounding the down-payment.

For example, in Henderson-Jorgensen v Henderson-Jorgensen, 2013 ABQB 213, the Alberta Court of Queen’s Bench dealt with a claim by the Husband that his father had gifted him $83,500 for the down-payment on a condo which was later sold to buy the matrimonial home and he claimed that this money should not be divided with the Wife. The key finding of the Court was that the Husband’s father was gifting the down-payment to both parties equally. Therefore, the Husband’s claim for the $83,500 exemption from the matrimonial home value was denied by the Court (para 140-41).

If there is disagreement about how the value of the matrimonial home is to be split between the parties and the matter is litigated in Court, the intention of the person making the gift will be taken into account by the judge. Free of any agreement, each party will have to convince the Court that the down-payment was intended to either be a gift for both parties or specifically for one. A spouse claiming the gift is excluded from division of matrimonial property is responsible for demonstrating that the property is really a gift to them alone. The onus to prove this fact is on the spouse wishing to protect the value of the property for their sole benefit.

Protecting the down-payment gift from equal division

Parents wishing to make home ownership a reality for their children while also protecting their rights need to have documentation that clearly states that the gift is for one person (their child) only. If there is no contract or document ensuring that the down-payment is protected, the way in which the home is used by the parties will determine the status of the gift. This means that if the home is the primary residence of both parties, and especially if the couple is raising children in the home, it will be considered the “matrimonial home”. To help ensure that the down-payment gift remains with the intended person upon dissolution of a marriage, a prenuptial agreement is your best bet for preserving the significant contribution from being divided equally.

Prenuptial agreements can be executed before the parties marry, or parties who are already married may enter into a post-nuptial agreement to have the same contractual effect. A marital agreement will reduce the potential risk for financial disappointment when your emotions are already in a state of turmoil. If the parties are in a common law relationship and not married, a cohabitation agreement may also be used to outline the total down-payment contributions received from third parties to safeguard against an unintended “payout”.

Discussing the importance of a prenuptial or cohabitation agreement with your spouse usually alleviates financial tension down the road. Read about prenuptial agreements and the value they provided in Banaszek Family Law’s blog post: Prenups are for Lovers.

An added benefit of entering into a cohabitation, prenuptial or post-nuptial agreement is the requirement for the couple to disclose their financial circumstances to each other. Relationships often fail due to difficult financial circumstances and a lack of communication, so obtaining an understanding of each other’s finances before tying the knot may be a key to avoiding divorce (or at least gaining some certainty that marriage is the right choice in advance of making it official).   

The concurrent rise in down-payment gifts and rate of divorce makes entering into a prenuptial agreement to prevent a generous gift from being disturbed in an unintended manner a no-brainer. Banaszek Family Law offers flat rates for uncontested family law agreements for clients in Alberta and British Columbia. Family law agreements provide peace of mind for both the parents gifting down-payments to their children and the spouses purchasing their new home.

Make the next move by scheduling your initial consultation with Adrianna Banaszek today, HERE

Follow Banaszek Family Law on Twitter: @BanaszekLaw, Facebook, and LinkedIn.

Prenups are for Lovers: Banaszek Family Law dispels myths about marriage contracts

What is more romantic than giving your future spouse certainty about how you intend to divide your assets and debts upon separation (if irreconcilable differences crop up) before tying the knot? NOTHING. Adrianna Banaszek of Banaszek Family Law explains what prenuptial agreements are, and why they are becoming increasingly popular, especially among millennials.

Popular culture has depicted prenups as something the financially-advantaged partner would want to propose in an effort to preserve their wealth. The once thorny subject is becoming less taboo as more people understand the nuances of entering into a private agreement that governs your relationship.

What is a ‘Prenup’?

A Prenuptial Agreement (“prenup”) is a contract between two future spouses that settles issues of property and debt division, spousal support, or any other matters you wish to make crystal clear in the event of a party’s death or divorce. Entering into a prenup provides parties the opportunity to plan for the unthinkable, which is often difficult but very important. Having a binding plan in the event of a divorce, usually saves spouses money because their matters are already decided and do not need to be mediated or litigated. Plus, it’s much easier for most couples to make clear and fair decisions during the “honeymoon phase” instead of when they are questioning why they decided to walk down the aisle to Ben E. King’s Stand by Me in the first place.

If you do not enter into a prenup, you will be subject to the Divorce Act (Canada) and legislation of your jurisdiction. In Alberta, for the most part, assets and debts accumulated during the marriage will be divided equally, save for exemptions which may apply (like gifts, inheritances and windfalls). Just because you acquired an asset before you began your cohabitation or before marriage, does not mean it is exempt from division with your spouse. The increase in value of “pre-marriage assets” during the course of your marriage may be subject to equal division as well. If you do not want the legislation to automatically apply to your relationship if there is no agreement to settle matters amicably, entering into a prenup is a way of contracting out of this framework.

The Prenup Process

Bringing up your desire to enter into a prenup or a cohabitation agreement to your partner may be difficult. Some people relate entering into a marriage contract as a sign of distrust, a way of jinxing the relationship, or extinguishing the passion. It may be beneficial to book an initial consultation with a family lawyer before discussing the matter with your partner so that you have an overview of the laws affecting you while you are not covered by a prenup. If your partner is already on board with entering into a marriage agreement, take note that at Banaszek Family Law, we will only meet with one party to the agreement to protect your interests and to reduce the chances of the agreement being overturned.

Financial Disclosure Exchange

The exchange of complete financial disclosure between the parties to the agreement is part of the drafting process and one way of ensuring that the agreement is not overturned in the future. Sharing details about your assets (savings, property ownership) and debts/financial obligations (student and credit card debts, lines of credit, leases) with the person you intend to spend the rest of your life with puts both parties on an equal “knowledge” playing field. When each party’s financial picture is laid out on the table, the agreement to be entered into becomes more equitable. It also gives each party more information about one another so that when they make the legal decision to marry, they know what they are signing up for.

Independent Legal Advice

Once the agreement is drafted by our office and both parties have had the opportunity to review and approve its’ contents, each party should (read: must) obtain independent legal advice before entering into the agreement. This will require that your partner attends at a separate law firm and meets with a different lawyer to receive legal advice on the agreement and have their signature witnessed. Obtaining independent legal advice will help ensure that the agreement is not subject to being overturned because one party did not receive the full advantage of legal advice. Obtaining independent legal advice also significantly reduces the possibility that one party can overturn the agreement in the future by claiming that they entered into the agreement under duress or that they did not understand the legal impact of certain clauses of the agreement.

Prenups for the People

Prenups are no longer reserved for the famous and wealthy. Although pop culture often depicts prenups as a preservation tool for the rich party, the less wealthy spouse may also be protected under the agreement with the inclusion of clauses that benefit their position (often upon receiving independent legal advice on the agreement).

With common law relationships on the rise in Canada and Canadians waiting longer to get married, more spouses are bringing assets (and debts) into marriages rather than accumulating them all together as was the case in the past. Career and financial stability have become priorities before marriage for Canadian millennials (Cardus Family study, August 2016), which in turn increases the need for prenups. There is a cost/benefit analysis which needs to be undertaken in advance of entering into a prenup, and usually the benefit outweighs the cost because there is so much uncertainty in the future and many people want to keep what they worked hard to accumulate. Prenups are now, more than ever, for all people!

Final Thoughts

It is very difficult to plan for all of the variables that may form part of your life and marriage. Although your marriage agreement can take many possibilities into account, there is always room for making changes to the agreement if it is by agreement of both parties and will be solidified with independent legal advice. It is often beneficial to reevaluate and update your marriage contract before or after big life changes, such as a change of career of one or both of the spouses, or a shift in the family dynamic (for example, the addition of children into the picture and shifts in caregiver roles).

You are NOT precluded from entering into a marriage agreement if you are already married. Spouses may enter into a post-nuptial agreement (“postnup”) if they are in agreement about the terms following their “I Do’s”. The risk you run into with waiting to see how your spouse feels about entering into an agreement after the wedding date is the potential for rejection. If you do not enter into a prenup before the marriage is solemnized, and if your spouse does not consent to enter into a postnup, the Divorce Act (Canada) and legislation in your jurisdiction will apply if you separate.

Banaszek Family Law offers flat rates for uncontested family law agreements, including: prenuptial, postnuptial, and cohabitation agreements. Make the next move by scheduling your initial consultation with Adrianna Banaszek today, HERE