Article written by Ron Shulman
Ontario Family Law has well-legislated rules about how family property gets divided after divorce. But as with most rules, there are exceptions – and one of them pertains to gifts that you or your spouse received personally after tying the knot.
Under the provisions of the Family Law Act, the value of property “acquired by gift” from a third person after marriage is specifically excluded the Net Family Property (NFP) that is subject to equalization. (And note that gifts during marriage from you to your spouse, or vice versa, are not eligible for this exclusion).
The Act does not contain a definition of what amounts to a “gift”. Instead, whether or not you have been given an eligible-for-exclusion gift depends on whether circumstances exist, namely:
- the third-party gift-giver must intend to make a gift to you, and must not have an expectation that he or she will be paid or receive anything (i.e. “consideration”) in return;
- you must accept the gift from the gift-giver; and
- there must be a sufficient act of delivery to transfer the gifted property to you, in order to complete the transaction.
If these elements are present, then the value of the gift that you received during your marriage can be excluded from your NFP.
But problems can arise in family law scenarios because property is often transferred among family members – and especially from parents to the children – under complex circumstances that don’t quite fall on either side of the legal line between gifts and non-gifts. For example in an estate-planning scenario, a living parent can quietly transfer property by way of gift to an unknowing adult child for their own tax-planning or estate-planning purposes; however that adult child may have a legal issue to untangle in the event he or she decides to divorce a spouse after the gift has been made. An unanticipated question will likely arise as to whether the gift meets the three criteria that allow for its exclusion.
This was the scenario in a recent Ontario Court of Appeal decision called Buttar v. Buttar, 2013 ONCA 517, There, the court grappled with the question of whether a milk farming quota that for tax-planning purposes had been gifted by a farmer to his son was properly excluded from the son’s Net Family Property when the son later divorced. Although the son did not pay the father anything in exchange for the quota (which met the first test for a gift), the transaction was part of a much larger one that included the sale to the son of livestock and other transfers. Since there had been consideration for quota transfer, it was not a gift that fell within the Family Law Act exclusion.
Needless to say each case will depend on its own facts and how those facts fit into the established test.
Do you have questions about how Ontario divorce laws deal with gifts you may have received during your marriage? Contact us for a consultation.