The Trend of “Giving While Still Living”

Introduction

Many older parents in Ontario are choosing to share their wealth with their adult children while still alive, rather than waiting to have the funds distributed as part of their Estate after death.  

This way, the parents can financially benefit their children and grandchildren much sooner, and perhaps even experience the effects of their own generosity in “real time”.  Or, the parents may want to provide a financial injection to an adult child who is going through a rough patch, and struggling to make ends meet.

Depending on their goal, these “early inheritance” payments from parents-to-child may look like a one-time financial gift, a set of regular payments, or even a one-time transfer to cover a major expense, such as the downpayment for their adult child’s new home.

But while this practice can be economically practical and emotionally rewarding, it also raises important legal and financial questions.  One important one, is how these kinds of parental gifts might affect the Family Law disputes of the recipient, for example if the adult child subsequently divorces from his or her spouse.

How Are These Payments Classified:  As a Gift? Or Income?

The starting point is to determine how these kinds of “early inheritance” payments are characterized.  This was the task faced by the Ontario Court of Appeal in a dispute over child support in a case called Bak v. Dobell, 2007 ONCA 304. 

The parents had a 13-year-old child together, and the mother sought child support from the father, who’d had little to do with the child since her birth.  However the father suffered from severe personality disorders and other conditions, and was effectively unemployable.  His own father, W, had been helping him financially for years.  W provided the father with a monthly payment of about $1,750 as an “allowance” to cover his day-to-day expenses, and also covered all his medical bills. As the court recounted, W even bought the father a condominium, to motivate him to “behave in a more conventional manner.” 

The father explained these were straightforward gifts from W, and argued they should not factor into the child support issue.  In contrast, the mother claimed these regular payments amounted to “income” in the father’s hands.  Since they would be continuing in the future, she asked the court to “impute” (i.e. infer or presume) the appropriate income level to the father, and to adjust his child support obligations accordingly.

The court disagreed with the mother’s approach, noting:

• The monthly amounts received from W were not taxable to the father, since he did not use them to generate income; and
• The medical funds were not available to the father to spend as he wished.

In short, the court concluded the father had no entitlement to any income stream, since W’s payments to him were wholly discretionary.  It refused to impute income to correspond to those future payments.

In coming to this conclusion, the court in Bak v. Dobell also set out a handy list of factors courts should use when assessing whether payments from parents (or other generous family donors) should be considered “income” for child/spousal support purposes, or merely “gifts”. Those factors include:

• the regularity of gifts;
• the duration of their receipt;
• whether the gifts were part of the family’s income during cohabitation that entrenched a particular lifestyle;
• the circumstances of the gifts that earmarked them as exceptional;
• whether the gifts do more than provide a basic standard of living;
• the income generated by the gifts in proportion to the payor’s income;
• whether they are paid to support an adult child through a crisis period or period of instability;
• whether the gifts are likely to continue; and
• the true purpose and nature of the gifts.

The court emphasized, however, that outcome of each case will depend on the specific facts.

Applying the Principles to Your Situation

If you are going through a divorce or separation and have been the lucky recipient of cash payments or other gifts from your parents, you will want to turn your mind to how they might impact your “income” assessment – and by extension how it might affect your child support or spousal support obligations or entitlements (as the case may be). 

Although your case will be fact-dependent, here are some recent real-life cases from the Ontario courts, that will help illustrate how courts apply the established legal principles in various scenarios:

• Malkov v. Stovichek-Malkov, 2017 ONSC 6822 – After separating from the wife, the husband lived in one of his father’s properties. He did not pay rent or help with utilities, insurance, condo fees, realty taxes or renovations, and there was no evidence that he would ever be expected to, in the future. The court imputed $30,000 income to him to account for some of these parentally-gifted benefits, when calculating spousal support for the wife.
• Fincham v. Fincham, 2017 ONSC 4279 – The father and mother both received monetary gifts from the father’s parents during their marriage, including a large one-time gift that would not recur in the future. The court refused to impute income to the father in their divorce, noting there was no consistent pattern of payment in the past, and also no certainty that he would receive any payments in the future.
• A.C. v. C.V.F., 2022 ONSC 2539 – Gifts from husband’s parents and various family members and his new girlfriend were not imputed to him. In the circumstances, the various payments were one-off, or were intermittent. This suggested they were not guaranteed to recur in the future.
• Bae v. Lee, 2019 ONSC 1496 – The father’s family was apparently paying for his tuition and providing him with some undisclosed level of income while he completed a veterinary degree. The court found a lack of evidence on whether it would continue, or whether there were terms attached to the payment of funds by the parents and extended family members. The court did not impute income to the father, for these amounts.
• B.M. v. B.F., 2019 ONSC 708 – A parent who owned a corporation had put the adult child on the company payroll, as a means of “income splitting”. The court imputed some income to the recipient child, in the specific and unique circumstances. 

The Takeaway

If you are separated or divorcing (or just thinking about it), you may have questions about how early inheritance may affect your Family Law matters.  Our law firm is here to help.  Feel free to give our offices a call, to discuss the specifics of your situation, and to give you tailored advice on your next steps.