Financial assistance from the “Bank of Mom and Dad” — and increasingly grandparents — has become a common feature of first-home purchases. Parents and grandparents are frequently advancing funds to help adult children enter the housing market, often without fully considering the legal consequences should family relationships later deteriorate.

That issue was central in Massaar v. Moneck, 2024 ONSC 6889, where the Ontario Superior Court of Justice considered whether funds advanced by a parent constituted a repayable loan or a gift. The decision serves as a timely reminder that informal family lending arrangements can create significant legal and financial exposure when they are not properly documented.

The Dispute

In 2017, Marian Massaar advanced approximately $200,000 to her daughter, Lauren, and son-in-law, Anthony Moneck, to assist with the purchase of a home in Orangeville. The parties intended that the funds would be repaid through monthly instalments, consistent with similar arrangements Marian had previously entered into with her other daughters.

Both Lauren and Anthony signed an amended gift letter and made regular payments for several years. By February 2021, however, payments ceased following the couple’s separation, leaving an outstanding balance of approximately $164,000.

Anthony later denied liability, arguing that the funds were a gift and, alternatively, that any loan arrangement existed solely between Marian and Lauren. Marian commenced an action seeking repayment.

The court ultimately granted summary judgment in Marian’s favour, awarding more than $163,000 plus prejudgment interest, payable from trust funds held from the sale of the couple’s home.

Why the Court Found a Loan Existed

The court focused on Marian’s intention at the time the funds were advanced and applied the factors outlined in Chao v. Chao, 2017 ONCA 701. Justice Healy concluded that the transfer was intended to constitute a loan rather than a gift.

Several pieces of contemporaneous evidence supported that conclusion, including:

• An amended gift letter describing the transfer as a non-interest-bearing, unsecured loan;

• Communications such as texts in which Anthony acknowledged that Marian’s transfer of funds was a loan;

• A repayment schedule sent to Marian prepared by Lauren and Anthony;

• Bank records evidencing regular monthly payments; and

• Evidence of similar lending arrangements involving Marian’s other daughters.

Importantly, the court held that the gift letter, standing alone, was insufficient to establish a gift because it had been executed primarily to satisfy mortgage financing requirements. Justice Healy also emphasized Marian’s consistent conduct throughout the relationship, including her ongoing expectation of repayment, receipt of payments, and repeated demands for payment.

Notably, the court observed that the legal costs incurred in litigating the dispute likely exceeded the cost of preparing a properly drafted loan agreement at the outset.

Key Lessons for Families and Advisors

1. Clearly Document Intent

Ontario courts place significant weight on the transferor’s intention at the time funds are advanced when determining whether a transfer constitutes a gift or a loan, as confirmed by the Supreme Court of Canada in Pecore v. Pecore.

Informal understandings and verbal agreements can be difficult to prove years later, particularly once relationships have broken down. Contemporaneous written documentation remains among the strongest evidence of intent available.

2. Document the Arrangement Before Funds Are Advanced

The most effective way to reduce uncertainty is to document the arrangement before funds are transferred.

In Massaar, promissory notes signed after the initial advance carried less evidentiary weight than a contemporaneous agreement likely would have. Similarly, mortgage lenders often require gift letters to facilitate financing, creating documents that borrowers may later rely upon to characterize the transfer as a gift.

A separate loan agreement executed at the time of the advance can significantly reduce ambiguity by clearly establishing the parties’ intentions.

At a minimum, the agreement should address:

• The amount advanced;

• The purpose of the loan;

• Repayment terms and timing;

• Whether interest applies; and

• Circumstances in which repayment may be accelerated or demanded.

3. Ensure Conduct Remains Consistent

Even where a written loan agreement exists, courts will assess whether the parties’ conduct aligns with the alleged loan arrangement.

Conduct that can serve as evidence of a bona fide loan includes:

• Regular repayments;

• Ongoing discussions regarding repayment obligations;

• Demands for payment; and

• Written acknowledgements of indebtedness.

Conversely, courts have been reluctant to recognize family loans where:

• No repayments are requested;

• No repayments are made;

• Repayment obligations are routinely forgiven; or

• Repayment is only demanded following a relationship breakdown.

Families may wish to provide flexibility during periods of financial hardship. However, suspending repayment obligations can undermine the characterization of the advance as a loan. Where accommodation is necessary, formally restructuring repayment terms or extending amortization periods may help preserve both flexibility and evidentiary consistency.

4. Consider Family Law Implications

The distinction between a gift and a loan extends beyond contractual enforceability and may materially affect property division under Ontario’s Family Law Act.

Upon separation, each spouse’s net family property (“NFP”) is calculated based on assets and liabilities existing on the valuation date. The spouse with the higher NFP generally owes an equalization payment to the other spouse.

A parental advance characterized as a gift may increase family assets and affect equalization calculations. By contrast, a legitimate loan is generally treated as a liability, reducing net family property and potentially affecting the amount payable on separation.

The characterization of parental financial assistance can therefore have significant implications in both family law and civil litigation contexts.

5. Consider Securing the Loan

Although Marian ultimately recovered her funds, her success depended in part on timing. She obtained judgment before the sale proceeds from the property were distributed, allowing her to assert a claim against those funds.

Many parents may not benefit from similar circumstances.

For larger advances, families should consider securing the loan through a registered mortgage or charge against the property at the time of purchase. A registered security interest offers several advantages:

· It survives ownership changes;

· It follows the property automatically;

· It establishes priority rights against sale proceeds; and

· It reduces reliance on costly litigation to enforce repayment.

In many cases, the cost of registration is modest relative to the potential expense of future litigation.

Looking Ahead

As intergenerational wealth transfers become increasingly common, disputes over whether parental advances constitute gifts or loans are likely to become more prevalent.

Massaar v. Moneck reinforces a fundamental principle: courts will look beyond labels and examine the objective evidence of the parties’ intentions and conduct. Family members who intend to act as lenders should clearly document the arrangement. Doing so will help avoid costly disputes while preserving both financial expectations and family relationships.

Key Takeaways

• Document parental loans before funds are advanced. A contemporaneous loan agreement provides significantly stronger evidence than documents created after a dispute arises.

• Intent must be supported by conduct. Regular repayments, repayment discussions, written acknowledgements, and ongoing demands for payment strengthen the characterization of an advance as a loan.

• Family law consequences can be significant. Whether parental assistance is characterized as a gift or a loan may materially affect net family property calculations and equalization obligations upon separation.

• Consider registering security. A mortgage or charge registered against the property may provide greater protection and recovery certainty than relying on litigation after a relationship breakdown.

• The cost of prevention is often substantially lower than the cost of litigation. Proper documentation at the outset can help families avoid expensive and time-consuming disputes years later.