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

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PROVIDE, DON'T HIDE: Banaszek Family Law explains disclosure in Alberta family law matters

“Non-disclosure of assets is the cancer of matrimonial property litigation” (Cunha v Cunha).

Many individuals resist providing complete financial disclosure in their family law and divorce proceedings, which invariably increases delays and sparks the potential for excessive litigation. During the financial disclosure exchange process, some parties feel that documents being requested from them are private and should not be shared. Some parties may feel that the opposing party (or their lawyer) is trying to gain the upper-hand by exploring every aspect of their financial situation. Talk about feeling exposed!

The “hiding” or “withholding” of disclosure by one spouse, or the perception that the spouse is avoiding full disclosure, is likely rooted in mistrust. These issues tend to be heightened in situations where one party did not have much control of the family assets or financial matters during the marriage or relationship.

Banaszek Family Law helps clients understand which documents they must produce to ensure efficient resolution of their legal matter. The legal guidance of an Alberta family lawyer will help reduce feelings of mistrust and ensure you are only producing the necessary documents to the other side. We are prepared to guide you through the confusing, but critical, process of disclosure exchange. 

I was served with a Notice to Disclose - NOW WHAT?

What is a Notice to Disclose application?

The Notice to Disclose is an Alberta Court application that compels the production of necessary financial documents within a specified period of time, being within 30 days of the filed document being served on you. Some of the information/documents which must be produced include the following:

  • income verification documents (tax returns, notices of assessment, pay statements, financial statements for parties who are self-employed in an unincorporated business, where applicable);

  • confirmation of all partnership and trust interests, assets and liabilities held in your name (Schedule A, bank statements, credit card statements, statements for all investment interests);

  • list of exemptions of assets claimed, where applicable;

  • list of special and extraordinary expenses claimed with supporting documentation, where child support is claimed; and

  • monthly budget of expenses, where spousal or partner support is claimed.

What should I do after being served?

If the party served with the Notice to Disclose fails to produce the relevant information/documents within the specified time, the party serving the Notice to Disclose is entitled to seek an Order for Costs for non-compliance and an Order for production of the missing documents at the upcoming Court appearance. Therefore, it is vital that you begin organizing the requested documents and seek independent legal advice from a family lawyer right after being served. By booking an initial consultation with an Alberta family lawyer, you will gain an understanding of whether your documents are complete pursuant to the Notice to Disclose and which documents you should NOT produce. A family lawyer should guide you through the disclosure process to ensure that you are not producing privileged (confidential) documents to the opposing party.

What’s the point of Notices to Disclose?

The Court created Notices to Disclose as a way to efficiently compel and expedite the exchange of relevant financial information in family law matters. Where Notices to Disclose are not filed, and if parties are reluctant to exchange documents, it often takes a great deal of time and effort to get relevant financial information from the parties in an action. The Notice to Disclose application puts pressure on the parties to produce the documents because they know there is an upcoming Court date at which an explanation for why the documents are not produced must be given. The sometimes onerous process of document exchange is thereby streamlined with this the Notice to Disclose.

Notices to Disclose can be used in divorce, matrimonial property, parentage and maintenance actions. They are not mandatory, but they are efficient and a good measure for future protection. A Notice to Disclose benefits a family law client in many ways, including reducing the potential for the opposing party to hide assets and income because they are obligated to disclose all aspects of their financial situation.

Other options for disclosure exchange

If the parties are efficient and forthcoming with exchanging disclosure documents without the need of Court intervention, the Notice to Disclose can be used as a guide to cover off most of the relevant documents required to confirm which assets and liabilities will be divided between the parties or exempt, and each parties’ guideline incomes for the purposes of calculating child and/or spousal or partner support. Consult with a family lawyer before making a disclosure request from the opposing party to confirm if you are entitled to receiving this information.

To help ensure that you are producing the correct documents to the opposing party/counsel, or if you wish to gain a better understanding of how you can compel the opposing party to provide you with documents and information relevant to your matter (with or without Court intervention), consult with a family lawyer in your jurisdiction.

Schedule an initial consultation with Adrianna Banaszek of Banaszek Family Law to learn about your legal rights and obligations. During May and June 2019, Banaszek Family Law is offering free 30 minute telephone initial consultations - Make the next move and book yours today!

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