Pass the Buck – or Pass the ‘67 Buick?
In a case called Townshend v. Townshend, the court was asked to consider whether a ’67 Buick – that had been passed from father, to mother, to son, to brother, and then to the grandson – was part of the Net Family Property of a husband in his divorce.
Originally, the car was owned by the husband’s father. After he died, the husband’s mother drove it for a few years but then gave it to one of her sons, Paul, to encourage him to go back to school.
The husband claimed that during the marriage, his brother Paul “gave” him the car for $400, which was the equivalent to what Paul had recently paid for new tires on the vehicle. The husband then claimed that he gave the car to his own son just prior to separating from the wife, i.e. putting it back outside the umbrella of the husband’s Net Family Property (NFP) in the upcoming divorce. At the date of separation, the car was registered in the husband’s name; by the trial date it was registered to the son.
In the subsequent divorce proceedings, the court was asked to consider whether the car should be considered a gift from the brother – and thus its value would be exempt from the husband’s Net Family Property – or whether its value should be added to husband’s tally of assets for equalization purposes.
At trial, the judge had said that “technically” the car was not a gift; rather the husband had purchased it from the brother for $400. The trial judge was also skeptical that the husband had gifted it to his own son prior to separation. The judge forced the husband to include the entire value of the ’67 Buick – about $5,750 – in the husband’s NFP.
The matter went to the Court of Appeal, which concluded that the trial judge had been wrong: While the judge was entitled to reject the husband’s claim to have given his own son the car prior to separation, he had clearly accepted that part of the husband’s story that had him buying the car from his brother Paul. As the Appeal Court explained:
It is implicit in the trial judge’s reasons that he accepted the husband’s evidence that he acquired the car from his brother by effectively reimbursing his brother for the cost of new tires the brother put on the car.
In these circumstances, in my view, it was unreasonable to conclude that the husband had not acquired the car by way of gift.
In other words, this arrangement fell short of a true purchase/sale: rather, the husband had been given the car by his brother except for having to reimburse the cost of the new tires.
As such, the proper approach was to consider the $5,750 value of the car – minus the $400 for new tires – to be a gift that was excluded from the husband’s NFP; only the $400 should have been added into the NFP calculation.
This case shows that especially in family situations, it can be difficult to identify the distinction between a gift between family members, as opposed to a sale or some other transaction (particularly if involves a price below market value). It’s always a good idea to get legal advice in these situations.
For the full text of the decision, see:
Townshend v. Townshend, 2012 ONCA 868 (CanLII)