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What Happens to Gifts in a Divorce in Alberta?
Family Law
What Happens to Gifts in a Divorce in Alberta?
10 min read
What Happens to Gifts in a Divorce in Alberta?
Introduction
During a marriage, couples may receive significant gifts from parents, grandparents and other family members.
A parent might provide $100,000 toward a down payment on a home. A grandparent might give valuable jewelry to one spouse. One spouse might receive an investment account from a family member or be given money to help start a business.
When the relationship ends, an important question can arise:
Who gets to keep the gift?
Under Alberta's Family Property Act, certain gifts received from third parties may qualify as exempt property.
However, that does not mean every item someone describes as a "gift" is automatically excluded from property division.
Who gave the gift, who was intended to receive it, what the property was worth, what happened to it afterward and whether it can still be identified or traced may all become important.
Are Gifts Exempt Property in Alberta?
Certain gifts can be.
Alberta's Family Property Act provides an exemption for property acquired by a spouse by gift from a third party.
The phrase "third party" is important.
It generally refers to someone other than the other spouse.
For example, a gift received individually from a parent, grandparent or another person may potentially qualify for an exemption.
Suppose Sophia's grandmother gives her $50,000 during her marriage.
Sophia deposits the money into a separate investment account in her own name and keeps records showing where the funds came from.
If Sophia later separates, she may be able to claim an exemption relating to the gifted property.
But the analysis can become considerably more complicated if the gift was given to both spouses or if the money was later mixed with other family property.
What About Gifts Between Spouses?
Gifts between spouses are different.
The statutory exemption for gifts refers to property acquired by gift from a third party.
This means that simply calling a transfer between spouses a "gift" does not necessarily make it exempt property.
For example, during the marriage, a husband purchases an expensive vehicle and gives it to his wife for her birthday.
She may think:
"It was a gift to me, so it is automatically mine if we divorce."
That conclusion does not necessarily follow under Alberta's family property legislation.
The vehicle may still need to be considered as part of the spouses' overall family property.
The same issue can arise with jewelry, investments, vehicles and other valuable property transferred between spouses during a relationship.
What If My Parents Gave Me Money?
Money given by a parent to one spouse can potentially qualify as exempt property.
The important question is often:
Who was the gift intended for?
Imagine that Emma's father transfers $100,000 into Emma's personal bank account.
His correspondence clearly states that the money is a gift to Emma personally.
Emma leaves the funds in an investment account in her own name.
That creates a relatively straightforward factual record.
Now change the facts.
Emma's father transfers $100,000 into the couple's joint bank account with a message saying:
"Here's some money to help both of you buy your first home."
The situation is much less straightforward.
The evidence may suggest that the money was intended as a gift to both spouses rather than exclusively to Emma.
The intention of the person making the gift can therefore become extremely important.
What If Parents Give Money for a Down Payment?
This is one of the most common gift disputes in family law.
Parents often help adult children purchase a family home.
For example, suppose Daniel's parents provide $150,000 toward the down payment on a Calgary home purchased by Daniel and his wife, Rebecca.
Years later, Daniel and Rebecca separate.
Daniel says:
"My parents gave me that $150,000. I should get it back before we divide the house."
Rebecca says:
"Your parents gave us the money so we could buy our family home. It was a gift to both of us."
The outcome may depend heavily on the evidence surrounding the original transfer.
Relevant evidence might include:
a gift letter;
emails or text messages;
bank records;
mortgage documentation;
correspondence with the lender;
evidence from the parents;
how title to the property was registered; and
what the parties understood at the time.
This is why substantial family gifts should ideally be clearly documented when they are made.
Gift or Loan?
Another common dispute is whether money from family was actually a gift or a loan.
Suppose a wife's parents transfer $200,000 to the couple to help them purchase a house.
When the marriage ends, the parents say:
"That money was a loan. We expect it to be repaid."
The other spouse says:
"No. It was a gift. Nobody ever expected us to pay it back."
The distinction can dramatically affect the property calculation.
If it was a genuine loan, there may be a debt that needs to be considered.
If it was a gift, the question becomes who received the gift and whether an exemption applies.
Courts may consider evidence such as:
whether there was a written loan agreement;
whether interest was charged;
whether there was a repayment schedule;
whether payments were ever made;
whether security was taken;
what the parties said when the money was advanced; and
how the transaction was treated afterward.
Calling money a "loan" years later does not necessarily make it one.
Good documentation at the time of the transfer can avoid significant disputes.
What Happens If I Put Gifted Money Into a Joint Account?
This can make an exemption claim more complicated.
Suppose your mother gives you $75,000 personally.
You initially deposit it into your own account.
Six months later, you move it into the joint chequing account that you and your spouse use for mortgage payments, groceries, vacations and other family expenses.
Years later, you separate.
The original $75,000 may be much more difficult to identify.
This is where tracing becomes important.
Tracing involves showing what happened to exempt property after it was received and connecting it to property that still exists.
The more extensively the funds have been mixed and spent, the more difficult that exercise may become.
What If I Use the Gift to Buy Something Else?
A gift does not necessarily have to remain in its original form forever for an exemption claim to be relevant.
For example, suppose Olivia receives $100,000 as a gift from her parents.
She uses the money to purchase investments.
Several years later, she sells those investments and uses the proceeds toward another asset.
At separation, the original $100,000 cash gift no longer exists.
However, financial records may allow Olivia to trace the gifted property through the subsequent transactions.
Useful evidence might include:
bank statements;
investment statements;
wire-transfer records;
purchase documents;
real estate records; and
other financial records showing where the money went.
What If Gifted Money Is Used to Buy the Family Home?
This is particularly important because a family home is often the couple's largest asset.
A spouse may receive a substantial gift from their parents and use it toward:
the down payment;
mortgage principal;
renovations; or
another major expense relating to the home.
The spouse who received the gift may assume that they will automatically receive that exact amount back upon separation.
The answer can be more complicated.
How the property was acquired and held, who the gift was intended for, whether the funds can be traced and the provisions of Alberta's Family Property Act all need to be considered.
The treatment of an exemption after property has been transferred into another form, particularly jointly held property, can involve difficult legal questions.
For a substantial gift, legal advice can be valuable before agreeing to how the home equity will be divided.
What Happens If a Gift Increases in Value?
Another important distinction is between the original exempt value and an increase in value.
Suppose Andrew receives shares from his father as a personal gift.
At the time of the gift, the shares are worth $100,000.
At separation, they are worth $300,000.
The fact that the original shares may qualify as exempt property does not necessarily mean the entire $300,000 is automatically excluded from the family property analysis.
Under Alberta's Family Property Act, increases in the value of exempt property are treated differently from the original exempt value and may be distributed in a manner the Court considers just and equitable after considering the statutory factors.
This can be especially significant for gifts involving:
investments;
real estate;
business interests;
shares; and
other appreciating assets.
What About Jewelry and Family Heirlooms?
Gifts do not have to be cash.
A parent or grandparent may give one spouse:
jewelry;
artwork;
antiques;
collectibles;
family heirlooms; or
other valuable personal property.
If the item was genuinely gifted to that spouse by a third party, an exemption may be available.
However, significant items may still need to be valued.
For example, saying:
"My grandmother gave me that ring"
may establish the source of the property, but if the ring is worth $50,000, its value may also need to be established.
Receipts, appraisals, photographs, insurance records and estate documents can all be useful.
What About Wedding Gifts?
Wedding gifts can present a different question because many are intended for the couple together.
If a family member gives the newlyweds $20,000 with a card addressed to both spouses, the evidence may indicate that the gift was intended for both of them.
On the other hand, a parent might separately transfer property specifically to their own child.
The fact that a gift was made around the time of a wedding does not, by itself, answer who was intended to receive it.
The evidence surrounding the gift matters.
Who Has to Prove That Something Was a Gift?
If a spouse is claiming an exemption based on a gift, they should be prepared to provide evidence supporting the claim.
Ideally, there will be contemporaneous documentation.
Useful evidence may include:
gift letters;
bank records;
emails;
text messages;
cards or correspondence;
wills or estate records;
investment records;
appraisals;
purchase documents; and
evidence from the person who made the gift.
The larger the gift, the more important documentation becomes.
A $200,000 transfer from parents should not be treated as casually as a birthday present.
Should Parents Document Large Gifts?
Yes.
If parents intend to give significant money or property specifically to their adult child, clear documentation can help avoid future uncertainty.
The documentation should accurately reflect what the parties actually intend.
If the money is a gift to one person, that should be clear.
If it is a gift to both spouses, that should be clear.
If it is a loan, proper loan documentation should be considered.
Trying to reconstruct the intention behind a six-figure transfer ten years later can be expensive and difficult.
Don't Assume a Gift Is Automatically Protected
The word "gift" does not end the analysis.
The important questions may include:
Who gave the property?
Who was intended to receive it?
What was it worth when it was received?
Was it a genuine gift or actually a loan?
Where is the property now?
Can it still be traced?
Was it transferred into jointly held property?
Has it increased in value?
The answers can significantly affect the final property settlement.
How Bridgestone Law Can Help
Gifts can create substantial disputes during an Alberta divorce, particularly when parents have contributed significant amounts toward a family home or other major asset.
At Bridgestone Law, our Calgary family lawyers can help determine whether gifted property may qualify for an exemption under Alberta's Family Property Act.
We can help review:
gifts from parents and grandparents;
down-payment assistance;
family loans;
gifted investments;
jewelry and heirlooms;
gifts used to acquire real estate; and
property that has changed form since the original gift.
We can also help gather the financial records needed to trace gifted property and determine whether professional valuation evidence is required.
If you received a substantial gift during your relationship, do not assume that it must automatically be divided.
Likewise, if your spouse claims that a major family asset is entirely exempt because their parents contributed money, do not assume that the claim is automatically correct.
The intention behind the gift, the evidence and what happened to the property afterward all matter.
If you are separating or divorcing in Alberta and a significant gift or family contribution is part of your property dispute, contact Bridgestone Law to speak with a Calgary family lawyer about your rights and options.
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