Protecting one’s financial assets isn’t something many single people think of doing before entering into a relationship. However, if money and property are on the line, it should be something singletons consider if they plan on getting married one day, lawyers who specialize in family law suggest.
But in today’s reality, financial assets are likely to be handed down to kids from their parents, therefore when steps are taken to protect property, it’s about protecting family assets rather than just the assets of one person, said Rick Peticca, an associate at Shulman Law Firm in Toronto.
“The idea is to save a lot of money and angst at the end of the day,” Peticca says. “If there’s something in place ahead of time – like a written agreement between the parties – it kind of sets out what the roadmap will be in that eventuality.”
According to statistics from Mortgage Professionals Canada, more parents today are helping their children with down payments on homes thanks to increasing home prices – prices that make purchasing a home out of reach unless you have a financial boost from your parents. Such gifts from parents have doubled since 2000, jumping from seven per cent to 15 per cent for homes purchased between 2014 and 2016.
With parents now having their hands in their children’s financial dealings as a result of pricey homes and other assets, setting up those assets can appear tricky if a romantic partner suddenly comes into the mix, leaving some to feel confused about the laws that do, and don’t, protect them.
And with divorce being a real possibility today (while Canada’s divorce rate has been falling in recent years, it’s about 48 per cent, according to Separation.ca), having some knowledge on how to navigate the legal aspects of this new financial relationship will help you down the road, Peticca says.
“Unlike previous generations where 40 or 50 years ago, the thought of living with someone early on or getting married early was almost never heard of, or they would get married early but they’d have nothing,” Peticca says. “Today there’s a lot of money being transferred from older generations, whether that’s given during their lifetime or upon their death … and a lot of times parents will give a gift to their child before marriage for example, and a lot of times the question will come up if the gift was only meant for their child, or was it to the couple.”
And just because it’s a gift, Peticca says it doesn’t mean it will always be protected.
A gift, the Department of Justice Canada defines, is a “voluntary and gratuitous transfer of money.” On top of that, the donor must not draw any personal benefit, either directly or indirectly.
So if the intention is to give the gift to a child and not a couple, then that’s when an agreement or letter needs to be signed by everyone in order for the arrangement to stick, Peticca says.
Before parents gift their child with money, Peticca has a few important points parents should consider.
First, there is a no gift tax in Canada and second, family members who gift the money may be required to sign a letter to confirm the money never has to be repaid.
So if a married couple purchases a home for example, it is considered a matrimonial home, which means that the home and any gift money is subject to be divided by both partners if they divorce. Couples who just live together, however, do not have this same right – each person keeps what is in their name.
“If a gift goes into the matrimonial home it will lose its exclusionary value,” Peticca explains. “So typically gifts are considered inheritances, given after the date of marriage or excluded on separation, but there are certain things that need to be in place. One is that it doesn’t go into the matrimonial home because the matrimonial home in Ontario, for example, is treated with a special status. So once it’s a matrimonial home, any money put into it is generally split equally between the parties.”
But there are also some things that anyone can do to protect any major assets in their name when they’re unmarried but in a relationship as well, Peticca points out.
One suggestion is to have a cohabitation agreement before your partner moves in. If marriage is in the future, consider a prenuptial agreement, Peticca says.
Don’t make the mistake of relying on verbal agreements. Document everything.
Also, make sure you understand what a gift is, that way you’re better informed as to what you’re entitled to and what the other person may be entitled to as well.
Lastly, make sure everyone is on the same page. In order to do this, that often uncomfortable conversation about assets has to take place as soon as possible, Peticca advises.
“This conversation should happen on day one,” he says. “I’ve seen so many clients over the years where this has never been a discussion for them in the beginning. But once they realize the relationship is serious and it’s looking to be more permanent, I think those questions need to be broached at that time.”