As BC high net worth family lawyers, we are often asked to deal with family property division cases where one spouse’s parents or relatives have contributed substantial sums towards the purchase of the family home.
We are also often asked to determine by one side or the other whether this advance of money was a gift to both spouses that due to marriage breakdown is now sought to be re-characterized as a loan to prevent the divorcing spouse from obtaining a windfall.
In still other cases claims for an unequal division in favour of the spouse whose parents advance the funds are made as well as a claim for repayment of the loan.
When we are approached at the start of the marriage and asked by a spouse how best to protect an advance of funds from their parents towards the purchase of property we recommend either an ownership interest be retained by the parents advancing the monies, a mortgage setting out the amount of their advance and the terms for repayment including interest rates or at a minimum some sort of written documentation which makes it clear what the advance is a gift or a loan.
A further complicating factor is that when parents or relatives advance money for the purchase of the home and then the mortgages obtained from a bank the bank will often seek to have the advance from the family members declared to be a gift as opposed to a loan in order to ensure that the bank has the fullest possible security. This document alone would not automatically convert a loan into a gift because the parents and proposes are essentially forced to make this statement to obtain financing from the bank. It is, however, at a minimum a complicating issue.
Call us if you are involved in a family advance of monies at the start of a relationship or if you are in a dispute over how these monies should be treated upon marriage breakdown.
The recent BC Court of Appeal case of Pasch v. Blackmore British Columbia’s highest court overturned a substantial reapportionment made in favour of the wife given that her parents that advance monies by way of a loan not a gift to purchase a home and that they had foregone payments during periods of time when the parties wish to allocate their money to other expenses. The Court of Appeal held that generosity from parents in the form of a loan did not justify reapportionment in favour of their child when the marriage down but rather decided that the loan would be repaid and the parties would split the substantial gain made as a result of rising real estate values. The court dealt with the situation of what date should be used to value the husband’s 1/2 interest in the equity in the home at trial had been six-month earlier and real estate values had risen dramatically. The Court of Appeals remanded the matter for determination of the valuation back to the trial court to decide whether to value the interest in the home or to sell the home.
We extract the key parts of the judgment below:
9] Ms. Blackmore contended that subsections 65(1)(a), (c), (d) and (f) were applicable. The summary trial judge noted that the property had been acquired during the couple’s cohabitation, shortly before their marriage. He did not consider that either the length of the marriage or the date that the property was acquired constituted a basis for reapportionment. He also rejected the argument that the property was a gift, noting that the parties took on debt in relation to the property, and would have been required to repay the debt even if the property had decreased in value.
[10] He considered, however, that reapportionment should be ordered under s. 65(1)(f), given that the property could not have been acquired but for the generosity of Ms. Blackmore’s parents in advancing the funds for acquisition on an interest-free basis. He also noted that their forbearance in allowing the parties to skip payments when they were unable to make them “allowed them to pay down other debts faster and to spend money they would otherwise have had to pay for rent.”
[11] In the end, the judge considered that a fair apportionment of the townhouse would result by treating Ms. Blackmore’s parents’ loans as if they represented an equity interest in the property. He treated the acquisition and renovation costs as being the amount invested in the property, rounding the total down to $320,000. He then rounded the parties’ contributions up from the $19,383 actually repaid to Ms. Blackmore’s parents to $20,000. Using those figures, he found the parties’ contributions to the equity to be 20,000/320,000, or 1/16. Taking the equity in the home as $200,000, he treated the parties’ share as being $12,500 plus their investment amount of $20,000. He found that Mr. Pasch was entitled to half that amount, which he rounded down to $16,000.
Was Reapportionment Available?
[12] Counsel for the respondent suggests that the trial judge’s analysis was in keeping with the requirements of s. 65. She says that the acquisition of the property would not have been possible but for the generosity of Ms. Blackmore’s parents, and that this factor justifies the reapportionment applied by the trial judge. As she put it in oral argument, “Why should Mr. Pasch enjoy a windfall”?
[13] In my view, the generosity of Ms. Blackmore’s parents in lending money for the acquisition of the home does not result in an equal division of the property being “unfair”. Ms. Blackmore’s own contributions to the property were precisely the same as Mr. Pasch’s. Her parents did not take an equity interest in the property, nor did they provide the parties with a gift. Rather, they provided secured financing for it, albeit without interest.
[14] There is a “windfall” to be divided here, not because of any particular contribution of Ms. Blackmore or her parents, but simply because the real estate market has been very favourable to homeowners in Vancouver over the past few years.
[15] The provisions of the Family Relations Act do not invite a court to apply abstract concepts of fairness to the division of family assets. Section 56 of the Act sets out the presumption that family assets are to be divided equally. While s. 65 allows a court to depart from equal division, it does not give the court free rein to find the “fairest” possible division of property. Instead, it requires equal division unless the court finds that such division would be “unfair” having regard to the enumerated factors. The interpretation of s. 65(1) was considered by this Court in S.B.M. v. N.M., 2003 BCCA 300. Donald J.A., speaking for the Court, said:
[23] … The question is not whether an unequal division would be fair …. The Legislature created a presumption of equality – a presumption that can only be displaced by a demonstration that an equal division would be unfair. So the issue of fairness is not at large, allowing a judge to pick the outcome that he prefers from among various alternative dispositions, all of which may be arguably fair. He must decide, in accordance with the language of s. 65(1), that an equal division would be unfair before he considers apportionment. Otherwise, although an equal division would be fair, a reapportionment could be ordered on the basis that it is more fair, and that, in my opinion, is not what the statute intends.
[16] He then quoted from the majority judgment of this Court in Lockhart v. Lockhart (1989), 19 R.F.L. (3d) 359 (B.C.C.A) at 362, which he indicated set out the correct approach to s. 65(1):
[24] … The general rule is the rule provided by the legislature in s. 43 [now s. 56]. The family assets must be divided equally. The exception to that rule occurs only where equality of division would be unfair and then only when the unfairness arises from the specific factors set out in the lettered paragraphs of s. 51 [now s. 65].
In my opinion, in this case, equality of division would not have given rise to unfairness. The question of whether equality is unfair is not to be decided on the basis of narrow distinctions. The determining factor is whether equality is offensive to a sense of fairness and justice, having regard to the circumstances of the parties.
In my opinion, equality would not have been wrong in this case. In particular, I say with respect to s. 51(e) that it is not intended that that paragraph should be applied to try to make the financial circumstances of each of the former spouses the same as each other. Nor is it intended, through the application of that paragraph, to destroy the economic independence and self-sufficiency of one spouse in order to try to bolster the economic independence and self-sufficiency of the other. It is only where leaving equality alone would be unfair, having regard to the need of one of the spouses or both of the spouses to become or remain economically independent and self-sufficient, that that section should be applied.
[Emphasis added by Donald J.A. in S.B.M. v. N.M.)
[17] It was necessary, therefore, for the summary trial judge to determine whether any of the factors enumerated in s. 65(1) made an equal division of the home unfair in the sense of being “offensive to a sense of fairness and justice”.
[18] In my view, the summary trial judge was correct in finding that the money advanced by Ms. Blackmore’s parents in this case did not constitute a “gift”. The money was in the form of loans, and there was both a legal obligation and an expectation that the parties would repay the funds.
[19] The judge found that neither the duration of the marriage nor the date when the property was acquired was a consideration making an equal division unfair. The respondent does not suggest that the judge erred in his assessment of those factors. The property was acquired shortly before the parties were married, and during their cohabitation. This was not a case of one of the parties coming into the relationship with property that, after a short marriage, the other is seeking to obtain.
[20] The summary trial judge erred, in my opinion, in finding that “other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse” would result in an equal division of the home being unfair. Both spouses came into the marriage with limited property, similar incomes, and similar earnings and capacities. Both parties made comparable direct contributions to the acquisition, preservation and maintenance of the property. No claim is made by either party of any indirect contribution to the property.
[21] While it is true that the financing for the house came from Ms. Blackmore’s parents, both parties contributed equally to the acquisition of the home, by entering into a loan agreement and by making payments.
[22] While Ms. Blackmore’s parents were generous to the parties during the marriage, their generosity does not make an equal division of the matrimonial home unfair as between the parties. If the rise in real estate values will result in Mr. Pasch receiving a “windfall”, it will equally result in Ms. Blackmore receiving a windfall.
[23] While it may not, strictly speaking, be relevant to s. 65, an equal division cannot be said to be unfair to Ms. Blackmore’s parents, either. They will end up with exactly what they expected to end up with – the repayment of the principal of an interest-free loan.
[24] In the circumstances, there was no basis for finding an equal division of the property to be unfair having regard to the enumerated considerations in s. 65(1) of the Family Relations Act. The judge should not have resorted to reapportionment under s. 65.
