Can Parents Help With a Down Payment Without Owning the Home (British Columbia)

Parents often want to help with a down payment but do not want the risks of co-owning the home. The good news is that you do not need to be on title to contribute. The harder part is deciding what the money is, and what happens to it if your child's relationship ends.

This article explains the difference between a gift and a loan, what lenders usually care about, and how the Family Law Act can treat the money in British Columbia.

This article covers the law of British Columbia.

Gift or loan: decide first

A gift is money you do not expect back. A loan is money you expect to be repaid, usually with agreed terms. Mixing the two, such as a vague "help" that you later call a loan, is one of the most common sources of family disputes.

The answer affects everything else. A gift may become excluded property in a separation, while a loan may become a debt that both spouses are responsible for, as explained below.

Lenders and gift letters

Before you move any money, it helps to know what your child's lender will ask about it. How a lender wants a gift documented is something to confirm with that lender directly. What a lender requires differs, so ask the lender what it needs before you transfer funds.

• Put the gift in writing and say clearly that no repayment is expected.
• Keep bank records showing the money moving from your account to your child's.
• Do not describe a loan as a gift to a lender. Misrepresenting this can cause serious problems.

Protecting the money if your child separates

Under the Family Law Act, spouses are both entitled to family property regardless of their respective use or contribution, and on separation each spouse has a right to an undivided half interest in all family property as a tenant in common. A person is a spouse if married, or if they have lived with another person in a marriage-like relationship for a continuous period of at least 2 years.

Excluded property includes property acquired before the relationship began, inheritances to a spouse, and gifts to a spouse from a third party. A spouse claiming property is excluded must demonstrate it. The increase in value of excluded property since the later of the relationship start or acquisition date is family property. A court must not divide excluded property unless it would be significantly unfair not to divide it, considering the duration of the relationship.

So a gift toward a down payment may keep its value as your child's excluded property, but the growth on the home can be shared. How this works out if the money is mixed into a jointly used home depends on the facts and on records.

A loan is different. Family debt includes obligations incurred by a spouse from when the relationship began until separation. A loan from you to your child during the relationship may be treated as family debt, so a written loan agreement is worth having.

Written agreements

Spouses may make written agreements to divide property equally or unequally. A property agreement needs each spouse's signature witnessed by at least one other person. The court may set it aside if, for example, a spouse failed to disclose significant property or debts, took improper advantage of vulnerability, or did not understand the agreement. The court may not divide property covered by an agreement unless it is set aside.

Some families ask a child and a new partner to sign an agreement dealing with the parental contribution before buying together. Full disclosure and making sure each person understands the agreement matter, because a court may set an agreement aside if a spouse failed to disclose significant property or debts or did not understand it.

If the parent goes on title instead, the parent becomes a co-owner. Co-owners can be compelled to partition or sell the land, and a co-owner who has paid more than their share can apply to the Supreme Court for relief. That is often more than parents intend.

What to do next

• Decide whether the money is a gift or a loan, and say so in writing.
• Ask the child's mortgage lender what documents it needs.
• Keep a clear record of every transfer of funds.
• If it is a loan, write down the amount, repayment terms and what happens if the home is sold.
• Ask a lawyer whether an agreement with the child and their partner makes sense.
• Keep in mind that a proceeding to divide property must be started no later than 2 years after a divorce judgment or nullity order for married spouses, or after the date of separation for unmarried spouses, and that this limit is suspended while the spouses are engaged in family dispute resolution with a professional.

Frequently asked questions