Are you thinking of loaning your children, or another family member, some money for mortgage financing so they can take advantage of the new BC Government down payment plan (Home partnership program) to get into the housing market? It’s tempting, especially if you are living in expensive markets like Vancouver or Victoria, but there are some issues you should consider so you can protect your family.
Let’s say you want to lend money to your child so they have the lifestyle home ownership offers through the BC Government Down Payment Plan. When you hand money over to your child is that money a loan or a gift? And, if it is a gift, is it a gift to your child or to your child and their partner?
None of these things seem relevant at the time money is transferred, but they become very relevant later if your child and their common law partner or spouse separate or divorce. It is really important, particularly in the context of the Family Law Act, British Columbia’s statue that guides the division of assets when couples separate or divorce, to know who owned what at the beginning of the relationship and who was gifted or who inherited what money.
As lawyers focused exclusively on family law, we recommend that all couples give serious thought to having a written agreement that sets out what each party has at the beginning of the relationship and how they will divide the property that exists at the end of the relationship. What is particularly good to know is whether or not any money the child received from a parent came to them as a gift or a loan, and whether it came to them alone or to their partner as well.
Now, we recognize that it doesn’t seem very romantic to enter into a contract when you start a new relationship or discuss marriage, but it is a practical reality. In my experience as a family lawyer for over 40 years, I have seen cases where once the parties started talking about a contract at the beginning of the relationship they realized they had nothing in common about the way they viewed money and in fact the relationship ended right then and there before any commitment began. Whether that is a good or bad thing remains to be seen but it means that no long term relationship is created that is bound to end in divorce.
As a parent who is gifting the money, it is also important for you to look at whether you are giving it to your child or your child and their partner. Are you expecting to be re-paid? Or, is it coming as an advance on a family inheritance? If those issues are clarified at the beginning of a relationship, both members of the couple know where they stand and there will be no family court trials about who remembers what about the discussions around the gifting of the family money.
A contract or agreement between family members such as through the BC Government Down Payment Plan is a legal expense that is very useful in the long run and highly recommended. The agreements we are talking about are often called “preNups”, pre- nuptial agreements, or cohabitation agreements, and can be very useful as a tool to talk about each person’s views on money and assets, and they can ensure that both of the couple know what is going on with the finances, and what will happen if they decide at some point in the future to separate. We recommend that these agreements be reviewed on a regular basis so that any changes can be incorporated into family financial planning.
Trudi L. Brown Q.C., Brown Henderson Melbye, Victoria, www.bhmlawyers.ca