It’s a common scenario: a young couple just starting out is in need of some cash to put down on a property, or for some other reason, so one or both sets of parents transfer them some money. But then the couple breaks up. Who gets the money that was originally transferred from the parents?
This scenario is even more common in Vancouver, where real-estate prices often make it very difficult or even impossible for people to purchase real estate without some financial help from their parents or older relatives.
If you are contemplating relying on your parents for financial assistance and you are currently in a relationship, here are some things to consider.
The use of the money matters
If the money is used to pay down debt or used to buy a depreciating asset (like a car), then the original amount of money that was transferred to you by your parents has lost value and is not subject to division with your partner in the event you two break up.
If, however, the money is used in a way that it gains in value (most commonly, by buying real estate), then things can get tricky, as explained below.
The intention of the transfer of the money matters
Was the money from your parents meant to be a gift or a loan?
If the money is a loan, then your parents should get the money back. However, it is common among family members to be vague about whether or not the money was indeed meant to be a loan or whether it was truly meant to be a gift with no expectation of repayment. A simple way to clarify this—and to prevent a lot of potential headaches in the future—is to put something in writing about the nature of the transfer at the time the money is handed over to you and/or your partner.
If the money is a gift, the law in B.C. says that gifts are excluded from division with your ex, except for its increase in value. This becomes a significant issue if parents gift money to their child, who then uses the money to buy a property in joint names with their partner. If the couple breaks up, the child of the parents, theoretically (more on that below), gets to keep the initial value of the money gifted by the parents. But the other spouse is entitled to half of the increase in value of that property (which could be a huge increase in today’s real-estate market).
Not only that, but by placing a gift from a third party (your parents) in joint names with your partner, you run the risk of a court deciding that you intended to share that entire gift with your partner and split the asset right down the middle instead of just awarding your ex-partner half of the increase in value.
The timing of the transfer of the money matters
Money gifted to an adult child by his or her parents—either before they enter into a relationship or during the relationship—is exempt from division with the other person in the event of a breakup, except for its increase in value.
Money gifted to an adult child by his or her parents after the breakup occurs is not subject to division with the other person, even any increase in value. It can therefore be important to pinpoint the breakup date, also known as the date of separation. Be aware that the date of separation is not necessarily the date when someone moves out of the house; generally speaking, the date of separation is when one person communicates to the other that the relationship is over.
What can I do to protect the money from my parents?
Put it in writing.
If your parents are loaning you the money, write up a promissory note for you and your parents to sign.
If your parents are gifting you the money, consider hiring a lawyer to prepare a marriage agreement or cohabitation agreement (commonly known as a “prenup”) for you and your partner to sign to protect any money gifted from your parents from division with your partner in the event of a breakup, including any increase in value.
Also consider keeping the money in your sole name if you are able (such as a bank account or property solely in your name), to prevent putting the entire amount (and not just the increase in value) at risk of division with your partner in the event of a breakup.
Financial matters between separating couples can be complicated. It is even more complicated when money from third parties becomes an issue. Speak to a family-law lawyer if you have or are about to receive money from your parents and you want to know more about what could happen to that money if you were ever to break up with your partner.
A word of caution: you should not act or rely on the information provided in this column. It is not legal advice. To ensure your interests are protected, retain or formally seek advice from a lawyer.