Most couples at some point contemplate the purchase of their first home together. Some are extremely fortunate to be able to contribute equally to the purchase and live in financial, harmonious bliss. Others (more commonly) contribute unequal amounts and run the risk of future uncertainty around the protection of their respective investments or a difference of opinion about whether their future contributions to the household are recognized if the releationship breaks down.
But what about families who want to assist their children or grandchildren by contributing towards a down payment? The issue of how this money is going to be protected often arises in these situations, and the gift may actually complicate things.
In common-law relationships, title to propertybecomes important. The partner whose family gifted the money can claim a gretaer share of the home when title is held as tenants-in-common, meaning that ownership is registered as something other than 50/50. Upon the eventual sale or other disposition of the property, the proceeds will be distributed in accordance with the percentage of ownership held by each partner. A cohabitation agreement is a critical tool to estatblish the intention of the parties regarding ownership interests, protection of investment, and how each partner's contributions will be recognized upon an unfortunate demise of a relationship, and sale of the property.
The problem becomes increasingly complicated upon the marriage of the couple. Legislation provides that upon the separation of a married couple, any increase in the property of the parties both joint and separate is "equalized", which means that the increase in value of each spouse's assets and liabilities (known as your net family property) are tallied and the spouse with the higher net family property will need to pay half of the difference to the spouse with the lesser held value. During this process, assets that are owned by a spouse prior to the marriage date are excluded from that spouse's side of the scoresheet, potentially closing the gap between the value of each spouses's assets and decreasing the amount of the payment to be made.
However, the matrimonial home is treated differently than other assets upon separation in that the value of a home brought into the marriage cannot be used like a regular asset brought into a marriage to reduce the equalization payment owing by that spouse - even if title is only in that spouse's name. A home is often a person's most valuable asset and the inclusion of this asset in this equation for a spouse that brought the home into the marriage can end up increasing the amount of the payment owed, if the home owning spouse comes out on top. If a family gifted money to the owning spouse, the value of this gift will not be excluded from the calculation of the value. This means that a gift given to one party, whether before or after marriage, that is invested into the matrimonial home will become part of the matrimonial home and neither party will receive credit for the contribution. This is an importnat component of what is known as the equalization of net family properties.
A second importnat factor is the opposite situation - if a gift is provided during the marriage to one party but is kept separate from the other family assets, the amount of this gift is not shareable between the spouses and does not equalized. While in the previous example, one spouse is credited with the value of the gift for the purposes of equalization, in this second example, the gift is excluded. Each of these situations is advantageous or not to a spouse, depending on perspective.
Luckily, these are all issues that can be dealt with in a carefully drafted marriage contract or cohabitation agreement. Ideally, this contract would be executed as early as possible, however it is never too late to do so.