You might not say it out loud, but you may privately wonder if your child’s marriage will stand the test of time. And if you also give or lend your child money from time to time, you may worry what might happen to that money if the marriage falls apart. Francois Desmarais, a Tax and Estate Planner at TD Wealth, joins Kim Parlee to discuss some ways to structure a gift or loan.
- You may not say this out loud, but some parents sometimes wonder if their children's marriages will last the test of time. And if you give your children money from time to time, you might wonder what might happen to that money if the marriage doesn't last. Francois Desmarais is a tax and estate planner at TD Wealth. He's here for this Ask MoneyTalk.
Francois, great to have you with us. Here is the question. I sometimes lend my child money or give them money. How do I ensure that it stays in their hands if there is a breakdown in the marriage?
FRANCOIS DESMARAIS: Thank you, Kim. It's a very interesting question. And I'm receiving this one quite often. The parents, they just want to help their children. And they're having this kind out of concern, I think, there's a breakdown of marriage. They don't want this money to be shared with the spouse.
So first comment would be to make it clear, is it a loan, or is it a gift? You see, because that would be slightly different. And also, this should be documented property. If the money is gifted, it's a gift, I would recommend that you have a document showing that it's a gift.
And then make sure that you may want to obtain a signature from the spouse saying, yeah, I do recognize that it's a gift, and it's money that does not belong to me and would not be part of any assets that would be divided if there's a divorce.
- Can you clarify? So from what you're saying, if the money is a gift-- and let's just say it's documented in both cases. If it's a gift, it's treated differently than it's a loan. So let's just say that they are able to talk to them, they are willing to have the conversation. What is the difference between those two things?
- OK, I do lend $100,000 to my daughter. She's 27 years old. She just got married. And I want to help her with buying a house. If it's a loan, a loan is a loan. If at one point she divorce, it's money she owed to me. So there's no difference for me that she's being married or not married because she needs to reimburse me.
Where, when it's a gift-- and we see this more often, parents want to give money. So if I'm giving money to my daughter, then it's different. You just want to make sure that you keep track, that this money is coming from me as a donation to my daughter. And you don't want this money to have to be divided with her husband if there is a divorce.
So if the money is going into an investment account, my recommendation would be that there be a separate account opened just for this money. And you may want to put it into the account opening document that this money comes from the father, and it's separated from any other personal account, investment account, or joint account.
Having said that, if the money goes into a house which becomes the family house, oh, then we'll hear about many differences in each provinces in Canada, you see? I know that in some provinces, that's going to form part of the "family house." And the value will have to be divided with the husband, ex-husband if there is a divorce. Where in Quebec, that would not be the case.
Under the Civil Code, if you've kept track of where the money is coming-- and I keep saying keeping track. Just take the situation where I'm giving $100,000 to my daughter. She buys her first house. They have two children. Then they want the bigger one. Then they sell the house. They buy a new one. Then they sell it because they're moving to the cottage. And then the divorce comes like 30 years after.
I've passed away in the meantime, you see? So we're talking about 30 years of making sure that my daughter is able to show that this money comes from me as a donation. And I would here include as a bequest if she is a beneficiary of my estate. That would be the same way of treating this in Quebec. And again, that may be different in other provinces.
- You know what? Francois, I love your real life examples. You really bring it to life and all the things you have to think about it. Thanks so much for joining us.
- It was a pleasure.
- Francois Desmarais is a tax and estate planner with TD Wealth. And if you have any questions, you want to ask MoneyTalk a question, send us an email to firstname.lastname@example.org, Ask MoneyTalk in the subject line, your question in the body. We'll find the right person. We'll ask them the question. And then you can find the answer on moneytalkgo.com.