Was It a Loan or a Gift? How Courts Treat Money From Parents in a Divorce

With home prices in the GTA where they are, a lot of couples couldn’t have bought their first house without help from one set of parents. Some families put that help in writing. Many don’t. A wire transfer arrives, the down payment gets made, and nobody gives much thought to whether the money has to be paid back.

That question tends to surface only after a separation. Suddenly one spouse’s parents say the money was a loan all along, and the other spouse, who was told it was a wedding gift or help with the house, sees it as an attempt to shrink what they’re entitled to.

Courts across Canada see this dispute constantly, and they’ve developed a fairly consistent way of resolving it.

Why the label matters

In Ontario, married spouses divide the growth in their net worth over the marriage through an equalization payment. Each spouse’s net family property is calculated by subtracting debts from assets. So if one spouse owes their parents $200,000 on the date of separation, that debt lowers their net family property, which in turn lowers what they have to pay the other spouse (or raises what they receive).

That’s why the “it was a loan” argument is so tempting, and why courts are wary of it. As one Ontario judge put it in Poole v. Poole (2001), a spouse shouldn’t get the financial benefit of a credit for a debt they will never actually be called on to pay.

The starting point: what did the parent intend at the time?

Whether money was a loan or a gift depends on what the parent actually intended when they handed it over. That’s a question of fact, and it’s anchored to the moment of the transfer.

The Supreme Court of Canada set out the framework in Pecore v. Pecore, 2007 SCC 17. When a parent transfers money to an adult child without getting anything in return, the law starts from a presumption of resulting trust: the presumption that the parent didn’t intend to give it away outright. (The opposite presumption, the presumption of advancement, now applies only to transfers to minor children.) But a presumption is only a starting point. The court weighs all the evidence to decide, on a balance of probabilities, what the parent really intended.

Pecore also explains why evidence created after the fact gets so much scrutiny. A parent can’t take back a gift by changing their mind later, and statements made after the event are easy to manufacture to reach a desired result. Courts can consider later evidence, but only to the extent it sheds light on the parent’s intention at the time, and they will guard against anything that looks self-serving. The Alberta Court of Appeal made the same point in Nafie v. Badawy, 2015 ABCA 36, noting that after-the-fact evidence of intention deserves particular skepticism in family cases.

What courts look for: the Locke factors

The most frequently cited decision on this question is Locke v. Locke, 2000 BCSC 1300. Courts across the country, Ontario included, use its list of considerations to decide whether money from a parent to an adult child was a gift or a loan:

1. Were there any documents made at the time showing a loan?
2. Was a way of repaying it set out?
3. Did the parent take any security for it?
4. Did the parent give money to one child and not others, or unequal amounts to different children?
5. Did the parent demand repayment before the couple separated?
6. Has any of it been paid back?
7. Was there any real expectation, or likelihood, that it would be repaid?

The Ontario Court of Appeal summed up the logic behind these factors in Barber v. Magee, 2017 ONCA 558. With a gift, the absence of any expectation of repayment tends to show up as an absence of security, records, payments, or attempts to collect. A loan usually looks different: it’s formally recorded, it has terms, and repayment is either made or pursued.

What later cases have added

Courts applying Locke over the past two decades have filled in some of the details:

• A document signed after the money is handed over can’t turn a gift into a loan. A gift is complete once it’s made (Hsieh v. Lui, 2017 BCCA 51).
• Paperwork alone isn’t enough. Courts have found advances to be gifts despite loan agreements or promissory notes, where the documents weren’t prepared for each advance or were never acted on (Zivic v. Zivic, 2014 ONSC 7262; Cade v. Rotstein, 2002).
• A history of generous giving is highly relevant. If the parents had been giving the couple substantial sums for years, a sudden claim that one transfer was different will be viewed with suspicion (Paleczny v. Paleczny, 2010 BCSC 36; Butty v. Butty, 2008).
• Repayments get a close look. The timing, amount and circumstances of any payment on the supposed loan will be examined (Mildren v. Mildren, 2013 ONSC 1435).
• An expectation of family help isn’t a loan. A parent’s hope that their child would look after them if they ever needed it may be a moral claim, but it isn’t evidence of a debt (Krupa v. Krupa, 2008 BCSC 414).
• The other spouse doesn’t need to have been in the room. The fact that one spouse wasn’t part of the conversations between their partner and the in-laws doesn’t, on its own, make the money a loan (Butty).

How these claims play out in court

The reported cases share a theme: Courts regularly reject alleged family loans when there is no clear documentation created at the time the money changed hands.

Zheng v. Yang: a “Loan Contract” that backfired

Zheng v. Yang, 2020 MBQB 146, is one of the most thorough treatments of the issue. The husband’s mother had been supporting him financially for about 20 years, and everyone agreed that nearly all of that money was a gift. The husband claimed one exception: $300,000, covered by a “Loan Contract” his parents had signed in China, to help buy the family home, a car and appliances. His wife first learned of the supposed loan when she was served with his divorce petition.

The court found the money was a gift, and its reasons are a useful checklist of what undermines a loan claim:

• The wire transfer forms the mother filled out described the payments as “tuition” or “living expense”. None said “loan”. Her explanations for that shifted during her testimony, and the court didn’t believe them.
• The document was neither witnessed nor notarized, and the original was never produced.
• There was no security. The parents didn’t take title to the house or register a mortgage, and the loan wasn’t disclosed to the real estate lawyer or the mortgage lender.
• There had never been a demand for repayment. The document had no due date and no interest rate.
• The only repayment was a single post-separation payment of $1,000, made half in cash and half in clothing, while the mother was still sending her son tens of thousands of dollars a year.
• The husband had virtually no income of his own, so there had never been any real prospect of repayment.

The mother’s own evidence sealed it. She testified that the document was prepared, about seven months after the wedding, for the “safety of the funds” in case the marriage ended in divorce. The court took that as an admission that the money was always intended as a gift to the couple, with the document meant to claw it back if the marriage failed. The husband’s father, who had drafted the document, was available but wasn’t called as a witness, and the court drew an adverse inference from his absence.

Ogundipe v. Apata: paperwork created 12 years later

In Ogundipe v. Apata, 2023 ONSC 6647, a wife’s father claimed he had loaned her $230,000 in 2004 toward a property. There were no records from that time. A trust agreement documenting the loan was signed in 2016, more than 12 years later, and the court gave it little or no weight.

The father had taken no security. He told the court he chose not to register a charge on the property because he didn’t want to cloud his daughter’s title or risk their relationship over money. He never demanded repayment before the husband started the court case, nothing had been repaid, and he had even let her keep $42,500 of sale proceeds rather than taking it toward the supposed debt. He said she could repay him whenever she could afford it, and confirmed he’d always been willing to help with her mortgage.

The court found the money was a gift at the time it was transferred. It concluded that the demand for repayment arose only because of the separation, to reduce the wife’s net family property and with it the husband’s equalization entitlement. Relying on Poole, the court held that she shouldn’t receive the benefit of a debt she would never have been asked to repay.

Luo v. Lun: when nobody can say what’s owed

The dispute doesn’t always involve parents lending to children. In Luo v. Lun, 2022 BCSC 1150, the separating spouses agreed that their adult son had sent them about $86,000 in small, regular transfers over several years. But money had also flowed the other way: the parents had sent their son large sums too, and the spouses disagreed about which of those were gifts and which were repayments. There was no loan agreement, and the son didn’t testify. The court couldn’t determine what, if anything, was owed at separation, so no family debt was proven.

The same decision rejected a separate claimed $60,000 loan from an acquaintance. There were no documents, no evidence of the terms, no matching deposit, and no receipt showing who received the cash supposedly used to repay it. The spouse claiming a debt carries the burden of proving it.

Other examples

Ontario courts have reached similar results in Gilmore v. Gilmore, 2023 ONSC 5333, where an alleged $100,000 loan from the husband’s parents was found to be fraudulent, and in Marrello v. Marrello, 2016 ONSC 835, where money from the husband’s father wasn’t treated as a debt because no bank records matched the alleged loan and there was no credible evidence of one.

When the money came from overseas

In a city like Toronto, parental help often arrives by international wire. That adds a layer of difficulty, because foreign banking records may be incomplete, in another language, or filled out in ways that don’t reflect what the money was really for.

Several British Columbia decisions deal with transfers from China, where currency controls limit how much an individual can send abroad each year. In Zhang v. Sun, 2016 BCSC 1418, one spouse testified that because of a limit of US$50,000 per person per year, it was common to route additional money through friends, relatives and other third parties. There was no formal evidence about Chinese banking law. But the court accepted that both spouses had believed the limit existed when the money was sent, and the bank records fit that belief: deposits from the husband close to $50,000 in early 2011 and 2012, with larger amounts arriving in the names of third parties.

Other cases show how quickly this kind of evidence can work against the person relying on it:

• In Ye v. Shi, 2019 BCSC 204, the documents for transfers from China were confusing, and on the husband’s own evidence some of the reasons given to the bank were false so that the transfers would be allowed. Even if his parents had funded the mortgage, the court said, that was simply consistent with their long history of helping him financially. It didn’t make them owners of the apartment or turn their help into loans.
• In Li v. Liang, 2021 BCSC 862, money was sent from China in increments through several accounts, which the respondents said was necessary to get around transfer restrictions. But the claim that the money actually belonged to a company was unsupported by any trust document, payment records or accounting.

The practical point: when a party has to admit that the stated purpose on a bank form was inaccurate, the court has to decide which of that party’s other explanations to believe. Recall that in Zheng, the “tuition” and “living expense” labels on the wire forms were part of why the loan claim failed.

If it was a gift: to one spouse, or to both?

Deciding that the money was a gift doesn’t end the analysis. The next question is who the gift was for.

Under Ontario’s Family Law Act, property that one spouse receives during the marriage as a gift or inheritance from a third party (such as a parent) can be excluded from that spouse’s net family property, along with property that can be traced to it. A gift made to one spouse alone may therefore be kept out of the equalization calculation. A gift intended for the couple doesn’t give one spouse that advantage.

There’s an important exception: The exclusion doesn’t apply to the matrimonial home. If a parent’s gift to their own child goes into the down payment on the family home, or into paying down its mortgage, that money generally loses its excluded status, even if it was clearly meant for that child alone. Families who want to protect a gift often address this through a marriage contract.

As with the loan-or-gift question, what matters is the intention of the person giving the money, at the time they gave it. Courts in British Columbia, which has a similar exclusion for gifts, have said the same: A gift from one spouse’s parents used to buy a family home or pay down a mortgage may not support an exclusion claim if it was intended to benefit both spouses (DeWolfe v. Flanagan, 2022 BCSC 1155, applied in Ma v. Liu, 2023 BCSC 283).

The Ontario Court of Appeal’s decision in Chao v. Chao, 2017 ONCA 701, shows how the analysis is framed. The court agreed with the motion judge that the real question was whether the parent intended to keep a hold on the money, whether through a trust or a debt. On the evidence, there had never been any expectation before the separation that the couple would repay any of the funds, so they were gifts. The Court of Appeal stressed that the test is intent at the time of the transfer, and that later evidence counts only if it helps show what that intention was, with the court guarding against anything self-serving or reflecting a change of heart.

In practice, the evidence that points toward a gift to one spouse or to the couple is much the same as on the loan question: whose account the money went into, who the parents spoke to about it, what it was used for, and how the parents had treated the couple’s finances before.

What this means for families

If you’re a parent lending money to an adult child, treat it like a loan when you make it. Put the terms in writing at the time: the amount, the repayment schedule, any interest, and what happens if your child separates. Take security if it’s for a house. And keep the bank records consistent with what you say the money is for. A document drafted years later, or after a separation, will carry little weight.

If you’re a parent giving money to one child and want it to stay theirs, keep in mind that putting it into the matrimonial home will usually undo the exclusion. A marriage contract is the more reliable way to protect it.

If you’re separating and your Ex now says their parents’ money was a loan, ask for the paper trail from the time of the transfers: loan documents, wire records, any demands for payment, any repayments. The cases above show that courts take a hard look at loans that appear only once a marriage ends.

And if the money really was a loan, the burden is on the spouse claiming it to prove it. Gathering that evidence early, before memories fade and records go missing, makes a difference.

Talk to Fine & Associates

If your parents helped you buy your home, if you’re planning to help your own child, or if your Ex is now calling family money a loan, the Family Lawyers at Fine & Associates can go through the paper trail with you and explain how a court is likely to see it. Call us at (416) 650-1300 or request a free phone consultation.