Family loans during COVID 19 could create issues if divorce happens

Mat Wirove, Calgary Family Lawyer and Divorce lawyer 
Marcus Sixta, Calgary Family Lawyer, Mediator, Founder Crossroads Law 

The economy in Alberta has taken a huge hit due to COVID 19 and the price of oil hitting record lows. As a result, many more couples are receiving loans or gifts of cash from their families to help them get by. Normally, this is not a problem.  However, when couples separate or divorce it inevitably creates an issue.

An issue that we have dealt with in many court cases and mediations, is whether the money received was a gift or a loan. If the funds were a gift then there is no debt to be repaid, but if the money was a loan, the new Alberta Family Property Act says that the couple shares this debt equally.

In contentious divorces dealing with matrimonial property, one person often argues that the funds were a loan that needs to be repaid by both parties, even if it was really a gift. After a separation, this could leave one spouse paying for a loan that never existed. Alternatively, a former spouse could argue that a loan was actually a gift, leaving the person who loaned funds high and dry.

Also, this is now a concern for common law couples as well because the new Family Property Act applies to married and unmarried spouses. Now, someone in a common law relationship could be faced with paying back a loan that they never even knew existed until after separation.

A recent Alberta Court of Appeal case, SJB v. RDBB, 2020 ABCA 108 has clarified the legal factors of whether money advanced between family members should be treated as a loan rather than a gift. The Court of Appeal stated that “the question of whether an intrafamilial payment is a loan is largely a fact-driven analysis; each case turns on its particular facts.”

Therefore, the Court looking at a family law case must take a case-by-case analysis of the situation. Some of the common factors to consider are:

  • Whether there were any documents supporting the loan made at the time of the loan;
  • Whether the manner for repayment of the loan is specified;
  • Whether there is any security held for the loan;
  • Whether there are advances to one family member and not others, or advances of unequal amounts to various family members;
  • Whether there was any demand for payment of the loan before the separation of the parties;
  • Whether there has been any partial repayment of the loan; and
  • Whether there was any expectation, or likelihood, of repayment.

After reviewing these factors in detail and how they were applied to that particular divorce case, the Court of Appeal in SJB v. RDBB decided:

[18] Despite a case management order of April 2018 and the appellant’s ongoing litigation obligation to produce all relevant records, the appellant failed to produce documentation in proof of (a) a loan from his mother relating to the purchase of the Arizona property; (b) when and how the monies were advanced or received; (c) where the money was deposited; (d) how the money was used; (e) any proof of repayment; or (f) any cheques, bank statements, or deposit slips evidencing a transfer of money from the appellant’s mother to him. These are all records that ought reasonably to have been in the possession or control of the appellant.

The court agreed it was a gift. Therefore, if a family member provides a loan, it should be documented clearly. Otherwise, it could be successfully argued after a separation or divorce that no repayment is required because it was a gift. It should also be noted that this decision further demonstrates the importance of full disclosure in family law claims. If you do not fully disclose the court may believe that you were holding back documents because you knew that they could damage your case.

Proving a loan or a gift in a divorce or family law case can be a very complex issue. There are other issues that can arise as well including trust arguments. Often, the only way to resolve it is in a trail with witnesses giving evidence. We expect that this issue will arise more frequently in the future as a result of the loans and gifts being provided to couples to help them through the economic distress brought on by Coronavirus.

If you are considering receiving funds from a family member at this time, you should consider a consult with one of the family lawyers at Crossroads Law. We have appeared in mediations, arbitrations and court on the issue of whether a cash advance to a couple was a gift or loan. Contact us now for a free consult.

During COVID 19, Crossroads Law is also offering discounted remote mediations. Contact us for more information.

The information contained in this blog is not legal advice and should not be construed as legal advice on any subject. The information provided in this blog is for informational purposes only.