In a recent case before the Ontario Superior Court of Justice, an Ontario couple, married for over 20 years, was forced to re-visit a decades-old loan in order to determine the value of the family’s “net family property” while going through a divorce.

The husband and wife were married on August 6, 1991. They separated on June 1, 2015 and were divorced two years later. During their first few years of marriage, the husband’s parents loaned the couple $120,000 to purchase the matrimonial home. They also lent the husband $66,000 so he could purchase a taxi license. Neither loan was paid back before the couple were divorced, and the court was asked to determine how each loan should be treated, as well as what the value of the taxi license is. These questions were necessary in order to place a value on the net family property.

The home loan

The parents took out a $120,000 mortgage on the home in June 1995. A promissory note for the same amount, without interest and payable on demand, was signed by both parties. While the couple did not offer to pay back the loan while married, neither did the parents request repayment. Both the husband and wife wanted to sell the home, but the wife wanted the money from the sale to be split equally between her and her husband. The husband wanted to pay back his mother (his father died) before any proceeds were divided between the couple.

The court pointed to Section 12 of the province’s Mortgages Act, which states the mortgage on the home must be discharged in order to sell the home. Additionally, case law states that when the amount due on a mortgage is in dispute, the court may permit payment into the court of the amount due in exchange for discharging an order. Since the husband’s mother was not a party to the proceeding, the court decided to pay the $120,000 into the court with the distribution of said money to follow a hearing on the matter.

The taxi license loan

The husband’s parents lent him $66,000 in 1994 so he could purchase a taxi license. He and his parents signed a demand note with interest accruing at prime + 5%, payable on demand. Like the mortgage loan, the husband made no payment to his parents, who also did not ask for any payments. The demand note was registered under the Personal Property Securities Act (PPSA) at the time it was made, but was only registered for five years, and was not renewed.

On June 20, 2017, the husband’s mother calculated the amount due on the loan to be $500,000 after 23 years of compound interest.

The husband sought an order that he be able to sell his taxi license and use that money to pay back his mother. Meanwhile, the wife, sought for the loan to be assigned a value of $0 for the purposes of the equalization process.

While the court found the advancement of funds to be a loan rather than a gift, it also determined the likelihood of the husband’s mother being able to enforce the loan to be very small. The loan was no longer registered, and the limitation period for its enforcement passed long ago. Since the loan was expired, it the court did not include it as a debt on the husband’s net family property statement, as only enforceable debts can be taken into account.

The court then turned to look at the value of the taxi license, which an expert witness offered evidence on. The court determined the value of one-half of the license to have been $171,000 at the time of the couple’s separation. That amount was factored into the husband’s net family property.

Couples going through a divorce or separation may find the division of property to be one of the most challenging issues to deal with. At Borden Family Law, we have over 17 years of experience in helping clarify and resolve difficult property issues. We have helped thousands of clients sort out their legal, financial, and property matters following a separation or divorce, and we can help you in a cost-effective and efficient manner. Please call us at 905-576-6090 or reach us online to talk today.