My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Tuesday, March 8, 2011

Housing Gifts and Loans to Children and Prenuptial Agreements

Over my twenty-five year career as a CA, I have dealt with many professionals who are experts in their field on various client files; from tax lawyers, to business valuators, to venture capitalists to forensic accountants amongst many others. Lately I have taken to asking (okay, twisting their arms) some of these professionals to write or provide comments for my blog on their specialties. Today marks the first of what I hope will be many contributions over time from these experts, with a family law contribution from Stephen Grant of McCarthy Tetrault.

Prenuptial Agreement or Family Feud?

I have recently blogged about considering a family meeting to discuss your will and the taboo topic of money amongst family members. However, the potential fireworks in confronting both those issues is like comparing a sparkler to a roman candle when it comes to your dear child entering into a new marriage.

It has been my experience that parents are loathe to discuss prenuptial agreements with their children once their child is in a serious relationship, as the children take any discussion as an affront upon their boyfriend/girlfriend or future better half. Thus, I try to raise the issue of future prenuptial agreements with my clients and their children when their children are just entering university, especially when the child has ownership in a family business or significant assets in their name.

I suggest this timing for two reasons: (1) the child is old enough to consider and understand the concept of a prenuptial agreement; (2) they will remember that you discussed this topic before they found the love of their life and thus, they will not necessarily consider it a personal attack upon their future spouse when you raise the issue of a prenuptial agreement.

For most families, the issue of share ownership or your child owning significant assets is a moot issue. However, in Toronto I see many parents gifting money to their children to help them purchase their first house, which I assume if a fairly common phenomenon across most of Canada. When I am informed or asked for my advice on housing gifts, I always advise my clients that they should go see their lawyer. I know most lawyers will then tell them that the gift should be documented as a mortgage or promissory note. By doing this, the parent will hopefully be entitled to get the loan back in the case of marital breakup.

The keen eyed will note I said "hopefully" above. I qualify my comment because the courts have discounted the value of the debt (mortgage or loan) where a judge has felt the debt was not valid and/or the child of the parent, who loaned the funds, would never be called upon to repay the debt to their parents. It is therefore imperative parents get proper legal advice to understand the best way to evidence the validity of the debt; which typically involves their lawyer drafting a debt document that has an interest rate and default and payment terms, to establish the debt is a bona fide debt and not a gift.

Noted Toronto litigation and family lawyer Stephen Grant of McCarthy Tetrault offers these further suggestions to protect family assets upon the marriage of your children.

  • Make gifts (or inheritances) after, not before, a marriage.
  • Explain to your children the importance of keeping assets segregated – especially ones that emanate from a post-marriage gift.
  • Create a holding company for each child. “Gift” the holding company shares to that child after marriage and pay all future gifts to the holding company.
  • Ensure that your own will has the requisite clauses to enable you to bequeath both capital and investment income such that the offspring recipient can exclude both from his or her net family property.
  • If the parent undertakes an estate freeze to transfer a company to his/her children, ensure that the child does not "subscribe" or purchase the Newco shares, but that the shares are gifted.
Stephen suggests that your child gets legal advice about the financial consequences of marriage and divorce before marriage.

As someone who has seen clients directly or indirectly lose thousands of dollars upon the dissolution of their child’s marriage, I suggest you heed Stephen's advice above.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.


  1. ceedream
    Are you obligated to give gifts to children in your child's class on their birthday?

  2. The CRA in IT-334R2 states that “Amounts received as gifts, that is, voluntary transfers of real or personal property without consideration, are not subject to tax in the hands of the recipient.”. Thus, there is no requirement to give the gift on their birthday.

    Note that on gifts made to your child who is below 18 years old, the "attribution rules" may have the effect of causing you to be taxed on the income earned on the gift.