How do you give money to your child, but keep it from his spouse?

It is very common for parents to want to give money, or property, to their adult children, but want to keep it from their child’s spouse (their son-in-law or daughter-in-law).  

The law does do a little to protect these gifts.  Common-law couples do not share in each other’s property.  Gifts that parents give to a married child, while their child is married, are usually “excluded” from the property division scheme for married spouses in Ontario.  However, there are three easy ways in which a child can lose the exclusion for that gift and have to share it with his or her spouse.  These are: 

  1.  if the child puts the money into a “matrimonial home” because, without a marriage contract, spouses always share the full value of the matrimonial home or homes that they have on the date of separation.   Keep in mind that spouses can have more than one matrimonial home.  A cottage, even a partial interest in a cottage, can be a matrimonial home and so a spouse can become entitled to some of the value of his or her spouse’s family’s traditional family cottage.
  2. if the child puts the gift into an asset that is shared with his or her spouse, such as a joint bank account.  The value of the gift may still be taken out of the property division calculations if the gift can be “traced.”  However, three is controversy on how such tracing should be done, and there is no guarantee that any of the gift can be protected using tracing.  Also, it is possible that a spouse can get an interest in an asset, even if his or her name is not on title, if he or she also contributes a lot to the asset.  In that case, the attempts to protect the gift can be very difficult.
  3. there is not proof that the gift was a gift instead of payment for services or repayment of a loan or similar.  However, this is easily remedied by the parents making the gift doing a formal written “deed of gift.” (The parents may need to see a lawyer to draft that document, but if a lot of money is involved, it is worth it.) 

Another way that a gift may be shared with a spouse is through support.  Any income (such as interest) that the gift earns is income for child support purposes.  That cannot be changed.   The gift itself doe snot matter for child support – unless it is a related gift that looks like income or “pay” from the parents. 

Spousal support can also erode a gift.  The gift can get caught up in spousal support in two ways.  First, a large gift can either increase a spouse’s ability to pay support, or decrease his or her “need” for money.  That can affect the amount of support.  Second, income from the gift may be included in the recipient child’s income for the calculation of spousal support.  This second consideration is also more easily remedied because a proper deed of gift can say that the gift, and income from it, are not to be considered income for spousal support purposes.

There are some ways for parents to give a gift to a child and protect.

The best way to protect a gift is to get the child and his or her spouse to sign a marriage contract.  A marriage contract can specifically state that an asset is not going to be included in property division calculations, whether it is a matrimonial home or not.  A marriage contract can even provide that a matrimonial home will not be included in the property division calculations.  Alternatively, it can give one spouse a set credit in those calculations.  A marriage contract can also limited spousal support, which means it can say that a gift from parents will not be included in the spousal support calculations.  Marriage contracts cannot change the rules for child support.

Marriage contracts  work well because the child’s spouse knows about the gift and specifically gives up the right to share in it.  The whole transaction will seem fair to a judge as long as the parties follow the rules for marriage contracts..  Your child and his or her spouse will both need lawyers – but that will be a worthwhile investment if there is a lot at stake.   Marriage contracts can be very unromantic. Many people have difficulty asking their spouse for a marriage contract.  It is often much easier for a spouse’s parents to insist on the marriage contract, and even make the giving of a substantial gift contingent on it. 

Another way to keep assets out of the hands of a son-in-law or daughter-in-law is to put them in a trust.  The child can have use of the assets throughout he trust, but not actually own them.   There are ways to attack trusts, and judges may be willing to consider those if a person thinks his or her spouse actually owns the assets.  It is best not to keep a son-in-law or daughter-in-law in the dark about the trust.   Also, the rules for trusts can be complex.  Additionally, they have to be set up in a particular way, that takes into account the particular circumstances of the family, in order for the trust to accomplish the gifting parent’s particular objectives.  There can also be tax implications.  It is important to hire a good lawyer to set up the trust.

The rules that apply to gifts from parents to their married children, the considerations about how to protect those gifts, and many other family law issues are covered in this easy-to-understand best-selling book on Ontario Family Law.  However, it is a very good idea for parents who want to make any sort of substantial gift to their married children to speak to a good lawyer about the best way to do that, and to protect the gift. 

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