Is it a GIFT or a LOAN?

Buying property is expensive. Nowadays, many first time buyers are assisted by the kind contribution of parents or in-laws. If someone in your family is generous enough to provide you with funds, make it clear whether these monies are a gift or a loan. It can make a difference down the line if the marriage comes to an end.

Parents will sometimes provide monies to children as a wedding gift, or to assist with the purchase of a home. Frequently, the funds are not characterized in any way, often there is no paperwork signed, and no effort is made to repay the money over the course of the marriage. When the parties separate, however, one spouse or the other may claim the monies were either a gift or a loan, depending on how the nature of the monies would impact the equalization payment and/or other property arrangements. For example, a husband might want to characterize the funds from their in-laws as a gift, such that there is no obligation to repay them. The wife, conversely, might want the money from her parents to be a loan, such that the debt has to be split between the parties and repaid.

If the parties disagree, a hearing will have to be held at separation to determine the nature of the monies. At the hearing, the court or arbitrator will consider the following factors:
a. Are there any documents contemporaneous with the provision of the funds?
b. Has the manner of repayment been particularized?
c. Is there security?
d. Were there similar advances made to other children?
e. Was there any demand for repayment before the parties separated?
f. Has any repayment on account of the monies been made?
g. Was there a likelihood or expectation of repayment?

The best approach is to avoid this thorny issue altogether by clarifying the nature of the funds up front. If the money is a gift, have everyone sign a deed of gift. If the money is a loan, a promissory note should be executed and payments made on the note throughout the marriage.