The division of property can be a contentious aspect of a divorce or separation. As seen in a recent Court of Appeal for Ontario decision, ambiguity around whether money was a loan or a gift can have a significant impact on what one person in a relationship owes their partner.

Substantial Cash Advancements

The couple involved in the case had divorced and settled many of their issues. The one outstanding issue was over two advancements made by the husband’s father during the course of their marriage.

The first advance was for $90,414 and was used as a down payment for the matrimonial home. The father later advanced an additional $67,000, which was also invested in the home, which was held in the husband’s name.

At issue is whether the advancements were gifts or loans. If they were gifts, they would have to be included in the husband’s net family property. If they were loans, they would be considered debts and would reduce his net family property.

At Trial

At trial, the judge found the advancements to be gifts. The husband appealed the decision, arguing the trial judge had made an error in presuming the advancements were gifts, leaving the husband to prove they were loans. He also argued that the trial judge’s finding that the advancements were gifts was made in error.

The appeal judge noted that the judge’s responsibility was to weigh all of the evidence in deciding the father’s intention at the time of the transaction, a test established by the Supreme Court of Canada in Pecore v. Pecore where The Supreme Court wrote:

“The trial judge will commence his or her inquiry with the applicable presumption and will weigh all of the evidence in an attempt to ascertain, on a balance of probabilities, the transferor’s actual intention.  Thus, as discussed by Sopinka et al. in The Law of Evidence in Canada, at p. 116, the presumption will only determine the result where there is insufficient evidence to rebut it on a balance of probabilities.”

The Court of Appeal Assesses the Original Decision

The court considered which objective indicators could be used in determining whether an advancement is a gift or a loan. In its decision the court writes, “A gift is a transfer in which the absence of an expectation of repayment tends to be reflected in the absence of security, recording, payments or efforts to collect payments. A loan often involves a formal, recorded transfer in which terms are set out and in which repayment is made or sought. In evaluating whether the presumption of resulting trust has been rebutted, a trial judge will naturally look at such indicia.”

The court found the trial judge had been correct in requiring the husband to provide some documentation to prove the advancements were loans. The existence of such criteria would help characterize the payments as such. The court said that while the burden is on the party claiming the money is a gift, “it is quite appropriate for a trial judge to notice the failure of the party who would be in control of documents and records of a loan to produce such documents. The relevant inference is not that the party is hiding the truth by not producing anything; it is that the absence of indicia of a loan that one would reasonably expect to find suggests that the advancement was not a loan but a gift. There was no error in the trial judge reasoning in this way.”

While the trial judge did say he was “not persuaded that the monies advanced were loans,” doing so was not enough to demonstrate that the burden of proof was shifted to the husband. The trial judge was found to have objectively assessed the situation, not making palpable and overriding errors in evaluating the evidence. The appeal was dismissed and the money’s classification as a gift remains.

Borden Family Law has been helping clients with their family law needs for over 17 years and has clients through a variety of circumstances. We have the experience and knowledge needed to guide you and your partner to agreements that protect your interests while also helping you understand your obligations and responsibilities to one another. Contact us today at 905-597-6090 or reach us online regardless of the state of your relationship or the nature of your legal dispute. Please don’t hesitate to ask us about our bundled legal services.