Division of Property
Court Looks At How Loans From Parents Should Be Treated During Divorce
With the rise of housing costs today, it’s not uncommon for parents to help their children buy their first home. With family, loans aren’t always treated the same way they would be by institutional lenders such as banks. This can lead to complications down the road, as seen in a recent case before the Ontario Superior Court of Justice where an Ontario couple, married for over 20 years, had to re-visit a decades-old loan in order to finalize their divorce.
The couple were married in August 1991. In the early days of the marriage, the husband’s parents lent the couple $120,000, which they used to purchase the marital home. In addition to that loan, they also lent the husband $66,000 which he used to purchase a taxi license. The couple separated on June 1, 2015, with neither loan paid back. The issue before the court was how the loan should be treated as well as what the current value of the taxi license is. This was needed in order to determine the couple’s net family property.
The home loan
The home loan was provided in June 1995. Both parties signed a promissory note agreeing the loan carried no interest, but was payable on demand. The parents did not request repayment of the loan during the marriage, and the couple did not offer to pay it back. This became an issue when they separated. The couple wanted to sell the home, but they disagreed over what should happen to the proceeds of the sale. The wife wanted to split the money equally between her and the husband, while the father wanted to pay his mother back (his father had died by this time).
In order to determine how the sale of the home should be treated, the court turned to Section 12 of the province’s Mortgages Act. It states that a mortgage on a home must be discharged in order to sell it. Additionally, the court relied on common law to determine that when the amount owed on a mortgage is being disputed, the court may permit payment into the court for the amount due in order to discharge the order. In this case, the husband’s mother was not a party to the hearing. The court ruled that it would take the $120,000 owed and pay it back to the mother during a separate hearing.
The loan for the taxi license
Unlike the home loan, the money provided for the taxi license came with interest attached (prime +5%). It was also payable on demand. Like the mortgage, the parents did not ask for the money to be returned, nor did the husband offer to pay it back. This loan was registered under the Personal Property Securities Act (PPSA) initially, but was not renewed when it expired after five years.
The mother calculated that the amount due on the loan was $500,000, which included 23 years of compound interest.
The husband was looking to sell his taxi license and use the proceeds from the sale to pay his mother. Meanwhile, the wife asked for the loan to be assigned a value of $0 for the purposes of determining their net family property.
The court found that while the money advanced for the taxi license was indeed a loan, it was no longer registered and the limitation period to enforce repayment had passed. As a result the court did not include it as a debt against the husband when calculating their net family property. However, the court did assign a value to the license, determining that one-half of it would be worth $171,000. This amount was factored into his net family property.
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