In Ontario, family loans can play a significant role in the equalization process during a divorce. Sometimes, the accuracy and/or existence of family loans is contested since they can have a significant factor in calculation a spouse’s net family property.Family loans can be recognized as debts and if found to be valid are deducted from a spouse’s net family property. This means that the loan will reduce their net family property.
The spouse claiming the loan must provide evidence that the loan exists. This can include loan agreements, repayment schedules, and any other documentation that proves the loan is legitimate and not a gift.
Courts will look at the circumstances surrounding the loan including the intention of the parties involved in the loan. If the loan was intended to be repaid, it will be considered a debt. If it was intended as a gift, it will not be deducted from the net family property.