Barber v Magee, 2015 ONSC 8054

This case presents a cautionary tale for inter-family transfers of monies and the necessity of careful documentation of familial loans by parents to their adult children.

Background

During the parties’ marriage, the Respondent’s Father, K, advanced $90,414.39 to his son to help fund the down payment on the matrimonial home.  K advanced a further $67,000 to his son during the marriage that the Respondent claims was used to help pay the mortgage and other household expenses of the matrimonial home.

The Respondent further claims that these funds advanced by K were loans that remained owing on the date of separation and thus should be considered a liability when calculating his net family property.  Alternatively, he argued that K had a resulting trust interest in the matrimonial home arising from the use of the loaned monies for the home.

The Applicant denies the characterization of these funds as a loan such that the Respondent is not entitled to a deduction of the amounts from his net family property.

Analysis

The main issue before the Court was whether the monies advanced by K were a loan or a gift to the Respondent.

As the first step in the analysis, the Court addressed the issue of whether there was a resulting trust in favour of K over the matrimonial home.

Though the Respondent never pleaded for a resulting trust relief in his Answer, the Court decided a resulting trust claim had to be addressed in the circumstances it had significant impact on the how the parties’ primary asset, the matrimonial home, would be dealt with.

The Court noted that, as per Pecore v Pecore, there is a presumption that a gratuitous transfer from a parent to their adult child is not an intended gift.  The adult child presumed to be holding the transferred funds in trust for their parent in a resulting trust.  Furthermore, the evidence to rebut this presumption depends on the facts of the case.  So long as a parent’s post-transfer conduct is relevant to their intention at the time of the transfer, evidence of same is admissible to rebut the presumption.

In examining the case law, the Court noted that the leading cases on determining whether there was a resulting trust claim focused on factors to determine whether a gift or loan was intended.  These factors include:

1. Whether there were any contemporaneous documents evidencing a loan;
2. Whether the manner for repayment is specified;
3. Whether there is security held for the loan;
4. Whether there are advances to one child and not others or advances on equal amounts to various children;
5. Where there has been any demand for payment before the separation of the parties;
6. Whether there has been any partial repayment; and,
7. Whether there was an expectation or likelihood of repayment.

After a careful and thorough consideration of the case law and the totality of evidence, the Court found that the monies advanced by the Respondent’s father were gifts based on the following:

1. The Respondent could not produce any promissory notes or other documents evidencing a loan;
2. There was no evidence of any kind of repayment or terms of repayment.  While there was allegedly a promissory note for the first $90,000 advance, its alleged terms did not include a payment schedule.  There was also no evidence of any interest calculation for monies owed pursuant to the alleged note.  Furthermore, there was no evidence for any terms for the further loan of $67,000.
3. There was no evidence of any security held or pursued by K for the loans.
4. There was no evidence that K made any demand for repayment of the loans prior to the parties’ separation;
5.  K did not commence any litigation at any time to collect the loan despite.  Furthermore, instead of commencing collection proceedings, the Respondent’s father advanced further monies despite the fact that the balance of the initial loans were still unpaid.
6.  There was no evidence of any meaningful expectation of repayment by the Respondent’s father nor any likelihood of actual repayment by the Respondent.  Prior to the date of separation, no payments had been made on the loan.  On the evidence, it appeared that K was willing to wait until the parties were able to pay before receiving payment and they were unable to prior to separation.  The Respondent’s father merely had a belief of a “good prospect” of repayment contingent on the parties remaining married and the possibility of the home’s value increasing.
7.  Based on the Respondent’s evidence, all the monies advanced by his father went into the matrimonial home’s purchase and expenses.  However, the Respondent’s father took no steps to exert nor attempt to exert any control over the property despite his significant investment in the property.
8.  The Court believed that a transfer of approximately $144,000 by the Respondent’s parents to the Respondent was a return of the $125,000 paid by the Respondent to his parents from the proceeds of sale of the matrimonial home.  Essentially, by advancing a further $144,000, the parents returned the monies paid to them by the Respondent, negating the effect of any actual repayment for a previous loan.

In light of the above, the Court held that the presumption of a resulting trust was rebutted as the Respondent and his father failed to provide sufficient evidence to demonstrate the existence of loans in the circumstances.  On a balance of probabilities, the Court believed that the monies advanced by the Respondent’s father were intended as gifts due to the fact that there was no clear intention or expectation of repayment.  The attempt to characterize these monies as loans only arose post-separation and as a result of the increasing conflict between the parties.

The Court closed its analysis with a caution to spouses and their families where there are advances made between family members such as parent to adult child.  The best practice in such situations is to maintain careful documentation of the loan and treat the loan the same way a third party arm’s length lender would.  The more an inter-family advance of monies is structured and factually treated as an arm’s length transfer for consideration, the more likely the court will recognize it as a loan.