Category: Family Law

It is very common for parents to want to give money, or property, to their adult children, but want to keep it from their child’s spouse (their son-in-law or daughter-in-law).  So common is this question, that both this podcast and this podcast address the issue.  There are ways to to do this, but you need to be very careful.

The law does do a little to protect these gifts.  Common-law couples do not share in each other’s property.  Gifts that parents give to a married child, while their child is married, are usually “excluded” from the property division scheme for married spouses in Ontario.  However, there are three easy ways in which a child can lose the exclusion for that gift and have to share it with his or her spouse.  These are:

•  If the child puts the money into a “matrimonial home” because, without a marriage contract, spouses always share the full value of the matrimonial home or homes that they have on the date of separation.   Keep in mind that spouses can have more than one matrimonial home.  A cottage, even a partial interest in a cottage, can be a matrimonial home and so a spouse can become entitled to some of the value of his or her spouse’s family’s traditional family cottage.

•  If the child puts the gift into an asset that is shared with his or her spouse, such as a joint bank account.  The value of the gift may still be taken out of the property division calculations if the gift can be “traced.”  However, three is controversy on how such tracing should be done, and there is no guarantee that any of the gift can be protected using tracing.  Also, it is possible that a spouse can get an interest in an asset, even if his or her name is not on title, if he or she also contributes a lot to the asset.  In that case, the attempts to protect the gift can be very difficult.

•  There is not proof that the gift was a gift instead of payment for services or repayment of a loan or similar.  However, this is easily remedied by the parents making the gift doing a formal written “deed of gift.” (The parents may need to see a lawyer to draft that document, but if a lot of money is involved, it is worth it.)

Another way that a gift may be shared with a spouse is through support.  Any income (such as interest) that the gift earns is income for child support purposes.  That cannot be changed.   The gift itself doe snot matter for child support – unless it is a related gift that looks like income or “pay” from the parents.

Spousal support can also erode a gift.  The gift can get caught up in spousal support in two ways.  First, a large gift can either increase a spouse’s ability to pay support, or decrease his or her “need” for money.  That can affect the amount of support.  Second, income from the gift may be included in the recipient child’s income for the calculation of spousal support.  This second consideration is also more easily remedied because a proper deed of gift can say that the gift, and income from it, are not to be considered income for spousal support purposes.

There are some ways for parents to give a gift to a child and protect.

The best way to protect a gift is to get the child and his or her spouse to sign a marriage contract.  A marriage contract can specifically state that an asset is not going to be included in property division calculations, whether it is a matrimonial home or not.  A marriage contract can even provide that a matrimonial home will not be included in the property division calculations.  Alternatively, it can give one spouse a set credit in those calculations.  A marriage contract can also limited spousal support, which means it can say that a gift from parents will not be included in the spousal support calculations.  Marriage contracts cannot change the rules for child support.

Marriage contracts work well because the child’s spouse knows about the gift and specifically gives up the right to share in it.  The whole transaction will seem fair to a judge as long as the parties follow the rules for marriage contracts.  To learn more about those, listen to this podcast, or watch this video.  Your child and his or her spouse will both need lawyers – but that will be a worthwhile investment if there is a lot at stake.   Marriage contracts can be very unromantic. Many people have difficulty asking their spouse for a marriage contract.  It is often much easier for a spouse’s parents to insist on the marriage contract, and even make the giving of a substantial gift contingent on it.

Another way to keep assets out of the hands of a son-in-law or daughter-in-law is to put them in a trust.  The child can have use of the assets throughout he trust, but not actually own them.   There are ways to attack trusts, and judges may be willing to consider those if a person thinks his or her spouse actually owns the assets.  It is best not to keep a son-in-law or daughter-in-law in the dark about the trust.   Also, the rules for trusts can be complex.  Additionally, they have to be set up in a particular way that takes into account the particular circumstances of the family, in order for the trust to accomplish the gifting parent’s particular objectives.  There can also be tax implications.  It is important to hire a good lawyer to set up the trust.

The rules that apply to gifts from parents to their married children, the considerations about how to protect those gifts, and many other family law issues are covered in this $20, easy-to-understand book on Ontario Family Law.  However, it is a very good idea for parents who want to make any sort of substantial gift to their married children to speak to a good lawyer about the best way to do that, and to protect the gift.

For more information on areas of family law, please contact Toronto family lawyer John Schuman at (416)-446-5080

Many people faced with having to complete a 13.1 Financial Statement find it a daunting task.  Here are a few tips to simplify the process.

The idea of completing an accurate monthly budget has some people collecting bank statements and credit card statements for the past year, and averaging out their expenses over that period, and then breaking them down to a monthly figure.  Although it is important to be realistic in your budget, this exercise is not necessary.  It is ok to “ballpark” how much you spend on groceries in any given month.  Although it used to be that spousal support would be loosely based on the “Budget” section of your Financial Statement, now that the SSAGs have become widely accepted in Court, the “Budget” has become less important.  It is still important to ensure that your budget makes sense in a global way.  Your budget should not be wildly off base, or your spouse will ask to see all the bank statements and receipts. If your budget indicates that you are running a deficit every month, but you do not have any corresponding increase in your debt, the accuracy of your Financial Statement may be called into question.

With respect to the property section of the 13.1 Financial Statement, it is designed to capture three specific dates: the date of marriage, valuation date (which is the date you separated) and today.  Any property that you owned between your date of marriage and valuation date, but did not own on either of those pertinent dates, is not entered on your Financial Statement.  The exception to this rule is if it is property that you have disposed of within the past two years.   Part 8 deals exclusively with property that has been disposed of during the past two years.  Perhaps the easiest way to understand how to complete the property section of your Financial Statement is this:  If you took a photograph of your financial situation on the date you were married, the date you separated, and the day you are completing your Financial Statement, these are the figures that you put into the respective columns.  Finally, the Financial Statement that each party completes addresses only the property that they have an ownership interest in.  For example, if your matrimonial home is in your spouse’s name, you do not put it on your Financial Statement because you do not “own” it.  Similarly, if you lease your vehicle, it does not get entered on your Financial Statement because you do not “own” it.

When you are completing your Financial Statement, you should keep all of the documents that you relied on to prepare the Financial Statement, so that you can give them to your lawyer together with your draft Financial Statement.  This step will save you a lot of time and hassle in the future, as your lawyer will most certainly ask for these documents.  If you are involved in a Court proceeding, it is important for you to know that a Court will not accept your Financial Statement if you have not attached your last three years’ Notices of Assessment (the form you receive from the CRA that has your income tax refund cheque attached to it).  You can order copies of these documents by calling 1-800-959-8281.  You should always do this as soon as you are asked to fill out a Financial Statement because the process of receiving them takes about six weeks.

Financial Statements are important no matter what path you have chosen to resolve your matrimonial matters – litigation, collaborative practice, negotiation of a Separation Agreement, or mediation/arbitration.  The most common reason that resolution of matrimonial matters is set aside by a Court at a later date is for lack of financial disclosure.  The thinking is this:  if you did not know what you were giving up because you did not have all of the information you needed, how could you have made an informed decision about whether or not it was the right choice for you?  This is true when entering into a Marriage Contract as well.  Think of it this way – if you are releasing your future right to receive spousal support, but you do not know how much your spouse earns, you may have made a different decision if you had all of the information available about your spouse’s income and income potential.