# loan vs gifted downpayment and divorce?



## twowheeled (Jan 15, 2011)

Hello all. My wife and I are looking at purchasing our first home. The situation is that my mother has expressed interest in moving into our new house and divorcing my dad. Hence we have been shopping for a slightly more expensive home with a legal suite. 

I am trying to understand the legal implications of the two scenarios where
1) she loans us the downpayment for the home. 
2) she gifts us the downpayment for the home. 

The downpayment would be around 100k. Is there any difference? We will be hiring a lawyer in the near future. I just wanted to see if anyone has been in a similar situation and can offer some input.


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## Money172375 (Jun 29, 2018)

Legal.....as in what it might mean for her potential divorce?


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## Mukhang pera (Feb 26, 2016)

twowheeled said:


> ...
> I am trying to understand the legal implications of the two scenarios where
> 1) she loans us the downpayment for the home.
> 2) she gifts us the downpayment for the home.


As always in these cases, it seems that everyone on cmf knows where everyone else lives and they have no need to ask. I am not endowed with that wide-ranging knowledge. I know where some here live, but not where twowheeled is located.

Lets say it's BC we are talking about. The Family Law Act will be of some implication in that case.

Under BC law, in scenario #1, if the down payment is documented as a loan to you and your spouse, then you are jointly and severally liable to make repayment if the loan is not forgiven at some point.

In scenario #2, if it's a gift to both spouses, if the OP and spouse have a parting of the ways, then the $100k is a "family asset" subject to equal division. The mother gifting the money (and the OP), might not care for that to occur.

In a third scenario, the gift is not to both spouses, but is documented as being a gift to the OP alone. Under the Family Law Act, that gift to one spouse would be considered as the "excluded property" of that spouse under s. 85 of the Act. So, on divorce, the OP would retain the whole $100k without division.

Those are some "legal implications" that come to mind. Not an exhaustive list, but, without further facts or focus to the question, not much more to say without indulging in a good measure of speculation.


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## AltaRed (Jun 8, 2009)

In this case, it is the mother and father divorcing, not the OP and spouse that might be in the future...at least not anticipated for the time being.

In BC, I don't really know how a documented loan by the mother to the OP and possibly DIL would be seen in a divorce of mother and father. I assume it would be considered an asset of the mother subject to Division of Property. IANA family law lawyer.....

If it is a gift, my guess would be there are no strings attached. However, I am guessing father might have some recourse IF he could show the court that his wife intentionally gifted the down payment as part of her strategy in divorcing her husband and moving in with son and DIL.


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## STech (Jun 7, 2016)

I dunno if the OP is asking regarding potential future marriage breakdown, or if he's asking regarding the mortgage qualification. 

As far as the mortgage is concerned, it won't work if it's a loan. A loan will impact your ratios which means you don't qualify for the bigger purchase you're talking about. If it's a gift, then it's OK. 

Bigger question is why not add your mom as a cosigner? Does she have income? Will she pay into the expenses?


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## Mukhang pera (Feb 26, 2016)

The above 2 posts highlight my point about having to speculate. Unclear what is really being asked. There's no shortage of "legal implications" to be considered, depending on one's focus.

STech is certainly right about a loan harpooning a mortgage application. Lenders don't like lending on property where the down payment has been borrowed. Some will be assuaged by a "gift letter" confirming the advance is a gift and not a loan. Lots of divorce and other types of family law cases in BC deal with these letters. Difficult to know why they remain so common. Most of them are really intended to promote a fraud or other form of dishonesty and are given with one's fingers crossed behind one's back. Banks seem in many cases to accept that a down payment is not borrowed where there is a "gift letter", even though it would seem that all concerned know the letter to be a deception. 

Here is but one of hundreds of examples I know of:

Wade v. Wade S.C., Murray J., 2019 BCSC 920, Vancouver E181502, June 10, 2019 , 15pp.

See, in particular, para. 33.


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## twowheeled (Jan 15, 2011)

Sorry to be unclear. Province is AB. Divorce is between my mother and father after my wife and I purchase the house together. She has not proceeded legally to start a divorce yet, and is waiting for an "out" which is a place to leave to in case things get ugly.

My father has relied on my mothers sole income to take care of the bills and mortgage for probably ~15 years. For whatever reasons he did not feel as though he was responsible to contribute to the household and spent his money for his own leisure while she paid all the bills and the mortgage. He has retired but doesn't have much for retirement savings. So now faced with a situation where she wants to leave and is likely going to have to give up half her assets including their home, perhaps alimony payments.

"legal implications" in plain english, she wants to help my wife and I with our first home purchase. Neither her nor I really care if it's a loan or a gift. How can we prevent my father coming after my spouse and I for 1/4 of our home in the divorce in scenarios as listed:

-loan 20% downpayment
-gift 20% downpayment
-cosign mortgage


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## STech (Jun 7, 2016)

This is such a shame and massive failing of our system, where one partner doesn't contribute equally, while the other pays the lion's share during the relationship, and is still expected to continue paying long after the relationship ends. Sorry to hear of of the ordeal. You're gonna need the help of a lawyer for sure. Where your mom puts that money might be irrelevant unfortunately if it's deemed family property. My advise is to consult a lawyer before a separation date is set, or any actions are put in motion.


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## AltaRed (Jun 8, 2009)

That was the essence of my posts. The mother may be hooped whether a gift or a loan in a Division of Assets. A loan would most likely be considered an asset in a Division of Assets.

However, I believe 'gifting' would be the better option because I suspect the father would have to prove in a court of law that the gift was intentionally designed as part of a plan to dispose of 'family assets' before an intended separation and divorce.

As STech suggests, it is likely important to get the opinion of a family law lawyer in AB before doing anything. I think the other important thing would be IF mother is going to co-sign for the mortgage, it is likely in everyone's best interest to make sure she has no more than a 1% beneficial interest on title. Many? Most? All? lending institutions do not like 'guarantors' of mortgages. They want co-ownership (beneficial interest) via co-sign.


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## Mukhang pera (Feb 26, 2016)

Probably STech has said what needs to be said.

I have no expertise in Alberta law, although there is a fair amount of similarity among provinces. There are also notable exceptions.



twowheeled said:


> How can we prevent my father coming after my spouse and I for 1/4 of our home in the divorce in scenarios as listed:
> 
> -loan 20% downpayment
> -gift 20% downpayment
> -cosign mortgage


You probably cannot prevent your father from making a claim. The best you can hope to achieve is to arrange things so as to discourage him from claiming. Allow him to see that he is bound to lose.

Again, not a lot of facts are known and no one here expects you to set out in great detail family history and finances. But, it sounds like your parents have had a marriage of long duration and it may be that AB law, like BC, starts with a proposition that at the end of any marriage an equality of property is presumed. In BC, a number of propositions can rebut that presumption. A good example is the case of a short marriage where one party brought all of the assets into the marriage. A court is unlikely to order an equal division.

What I am getting at is this. Let's say your parents have been together for 20 years. They started out with modest income and assets. Over the years, they built up a bit of an estate. That was perhaps largely due to your mother's efforts. In BC, in that scenario, an equal division would most likely be ordered. A BC court is unlikely to say to your father: "Well, you didn't put much in, so you can't take much out." Relative contributions count for very little here when the marriage is of long duration. 

So, carrying on. Let's say that, in that 20 years your parents built up assets valued at $1 million. Such be the value of the "family assets". Presumptively, on dissolution of the marriage, each spouse is entitled to $500,000. In that scenario, your father has no need to come after you or your spouse for anything. He simply has to take the position that any loan or gift of $100,000 was made out of your mother's share of family assets and she was entitled to deal with her own assets as she saw fit. He still gets his $500,000 without having to look to you, your spouse, or your house.

Your father would only have a motive to proceed against you, your spouse and the house you purchase if the $100,000 put up by your mother effectively bankrupts your parents' matrimonial estate. If their net assets are less than $200,000, then barring some recovery against you, your spouse and your house, he would not be able to realize his equal share of family assets, his share being $100,000, then he will be forced to look to you to recover. In that case, I am not sure he can be stopped from claiming. You could perhaps engage in some ducking and weaving, perhaps raising a barricade of fraudulent conveyances and preferences or some such, making it a daunting task to proceed - perhaps embroil him in a litigation extravaganza that he cannot afford. That's always a strategy. It takes deep pockets to play that game most of the time. Very easy to burn up $100,000 in legal costs (for both sides).

In short, if your mother providing you with $100,000 by way of loan or gift would frustrate your father's efforts to obtain the share of matrimonial property to which he believes he is entitled, then you might find that you and your wife are joined as defendants/respondents in a family law action in which dad asserts a claim against the house by way of constructive or resulting trust and against you and your wife by way of a claim in equity, based upon restitutionary principles such as unjust enrichment.

Some interesting related reading from the Continuing Legal Education Society of B.C.:

PROPERTY UNDER THE FAMILY LAW ACT, PAPER 2.1
Property Issues—Lessons from Alberta
April 2014

THE INTERPLAY BETWEEN AGING, DEATH AND DIVORCE, PAPER 6.1
Intergenerational Property Issues: My Money Your House
June 2013


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## Mortgage u/w (Feb 6, 2014)

I can only comment on the implication the gift vs loan will have on your mortgage. 
A gift is no problem - business as usual.
A loan will change your qualification where it will be added to your obligations. If your file is to be insured, it will also carry a higher insurer premium (CMHC, SAGEN or CANADA GUARANTY).


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