The story in Leu v. Joca begins this way: More than 20 years ago, the husband borrowed $66,000 from his parents to get a Taxi License, which would be taken out solely in his name. The loan was documented in a Demand Note, with interest being set at prime-plus-5 percent, payable on demand. It was initially registered for a five-year term under the personal property security legislation, but it was never renewed, and no security was registered in respect of it.
During the span of the couple’s marriage, the husband never made any payments on this loan, nor did his parents every make any demands to have it repaid.
However, the couple separated after 24 years. By this time, interest had accumulated, and the value of the loan had ballooned to almost $513,000, a figure provided in a discharge statement prepared by husband’s mother’s lawyer.
The now-separated spouses went to court for assistance in equalizing their Net Family Property (NFP), most notably the proper manner in which to treat that Taxi License Loan.
The husband asked the court to verify the existence and have it valued at $513,000; more importantly he asked the court to confirm that, for NFP purposes, he could deduct it to reduce the shareable part of his property. The wife, not surprisingly, asked the court to give the Taxi License Loan a value of zero, for NFP-calculation purposes.
The court, looking at all the circumstances, endorsed the wife’s position. It concluded this was a valid loan from the husband’s parents – not a gift. This outcome was supported by the existence of the signed demand note, the registration under the personal property security legislation, and the prepared discharge statement. More to the point: The facts showed that the parents expected repayment, and the husband believed he was obliged to repay them.
However, the court pointed out that since more than 20 years had passed since the funds were actually advanced, the husband’s parents would have little chance of actually recovering the funds by way of a notional court action, since the 6-year limitation period for suing on the loan had expired. The clock started ticking on the limitation period on the date the funds were advanced.
In other words: The parent’s loan to the husband was valid, but legally uncollectable.
This being the case the loan was not deductible, because only legally-enforceable debts were eligible to be treated that way. This loan had effectively expired, and was no longer a debt that the husband owed.
The court accordingly set the value of the loan as zero for NFP purposes. On the other hand, the court accepted the evidence of an expert as to the value of the Taxi License itself, attributing $171,000 as of the separation date. This amount was factored into the husband’s NFP.
The court went on to settle other aspects of the spouses’ respective NFP, and granted summary judgment, accordingly.
For the full text of the decision, see: