Given the rate of divorce in Canada, even if your marriage is rock solid, you will need to take this into consideration when you are giving gifts to your children. You probably don’t intend the valuable gifts that you are giving to go to your son-in-law or daughter-in-law after your child’s separation. There are several steps you can take to protect your gifts to your children.
Defer certain gifts until after the wedding. Gifts given before and after the wedding date are treated differently. If you give a gift to your child prior to the wedding, then if your child separated, he or she will get a deduction for the value of on the date of marriage. Any appreciation in the value of the gift during the marriage will be included in your child’s property to be divided. However, gifts given during the marriage, as long as kept separate from other assets, are wholly excluded from the division of property on separation.
Clearly indicate to whom gift is given. One source of dispute in a divorce is who actually owns the gift you gave. Was the gift given just to your child or to the married couple? If you want your child to benefit from the gift, you must make absolutely clear that the gift is only to the child and not his or her spouse.
Be careful with matrimonial homes. The matrimonial home is an exception to the rule that gifts are not shared between spouses. If you give your child a home to live in, then this will automatically be divided on separation.
Make a loan rather than a gift. Often, you’ll want to help your children start out in life – perhaps to purchase their first home. Rather than give them the money to do this outright, you’d be better of loaning them the money. Then, if your child separates, you can recall the loan, and this money will not need to be shared with your child’s spouse. Proper documentation of the loan is essential for this.
Insist on a marriage contract. If the asset involved is significant enough, for instance share in the family business, you’ll probably want to insist that before you give the gift, your child enter into a marriage contract or a cohabitation agreement.
There are more sophisticated techniques, such as setting up a trust or a family law freeze. You’ll need to consult a lawyer about these techniques.
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