Marriage, Gifts and What Happens in Divorce

Let’s Review Some Rules

December 7, 2017

When two people get married, their intentions are generally to stay together forever – for richer or poorer, in sickness and health, for better or for worse (or any other form of these vows important to the couple). It’s a wonderful sentiment and a positive approach to relationships, but as we all know, unforeseen situations can happen and things don’t always1 work out as planned. On average, over 8000 couples get divorced each year in Alberta alone. Naturally, this is not the outcome that any couple desires, but oftentimes, it is a responsible decision made with mutual respect.

When things become complicated in a divorce, it’s often because of financial issues such support payments, the division of shared funds, or issues pertaining to property ownership and chattels. The latter can be particularly complicated if referring to gifted items, which often come from parents or other family members. So what happens when a gift is given and received during marriage, and then the couple divorces? Let’s review some rules relating to family, marriage, gifts and the matrimonial home.

Gifts given before marriage

If a gift of money, or an object of value is given to a party prior to their marriage, they rightfully own it and can retain ownership after a divorce2. For example, if a parent gives their adult child a gift (such as a car or sum of money) and that child later divorces, the gift will be exempt from any property division during the divorce as the gift remains the property (or funds) of the adult child. As per section 4(1) of the Family Law Act (Ontario, 1990), which helped shape the regulations of many Canadian provinces, the entire value of that gift on the date of marriage is excluded from shared family property and cannot be claimed by the second party in the divorce. Similar laws were introduced here in Alberta at a later date (2005) and are defined under the Matrimonial Property Act (MPA).

Gifts toward the matrimonial home

This is where things get more complicated. While a person has the right to retain ownership of any funds, property or chattels gifted to them before marriage, there are different rules for gifts toward the matrimonial home. Let’s imagine your adult child is married and is hoping to buy a home with their spouse. As a generous parent, you offer a gift of money toward the down payment, or perhaps a renovation to the new home. In this case, because the gift was an investment in the shared matrimonial home, it is claimable by both parties in the event of a later divorce3. The exception to this rule is personal inheritance, which is generally excluded property unless gifted to the matrimonial home.

Protecting gifts to your family

If you’d like to gift a sum of money to your adult child but have concerns about the ownership/benefit of that gift if a divorce were to happen, there are a few possibilities. One option is providing the money in the form of a loan rather than a gift. In this scenario, the main caution is that the loan must actually be a loan – not a gift in loan’s clothing. If contended, a court would look at specific criteria to determine whether or not it was a valid loan – for example, repayment terms, documentation, partial repayment to date, etc.

Another option is to become a title owner on your child’s house when helping them make the purchase. This would make you an owner and therefore, the property would not be considered net property to either party (your child or their spouse) in a divorce. The downsides to this are clear, however: you would own and have responsibilities to the property, and may not want to be tied to the purchase and your child’s finances for the long-term.

Thirdly, there is the option of a pre-nup. While this would have to be handled by your child and their spouse, a premarital agreement can map out what happens to gifts in the event of a later divorce. Consider suggesting a pre-nup to your child before gifting any large sums of money – just remember, this may be a delicate conversation. No one likes to go into marriage thinking about divorce, so a sensitive angle is advised.

If you have any further questions, or would like to speak to a member of The Wooding Group about your wealth management needs, please reach out. You can count on us to help in any way we can.

The Wooding Group at CIBC Wood Gundy, 780 498-5047

1 Source: Statistics Canada
2 – How To Protect Gifts Toward a Matrimonial Home from Divorce
3 – How To Protect Gifts Toward a Matrimonial Home from Divorce