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Intra-Family Loans, A Cautionary Tale

4 minute read

The area and practice of family law is shaped by and evolves through societal change, legislation, global events (like a pandemic), and through judicial decisions of the Courts in Ontario and across Canada. FamilyMatters is the Lerners Family Law Group's weekly update on how that change is being made:

Terminating a relationship is often fraught with emotional and financial challenges. Sometimes dividing assets is not as simple as drawing a line down the middle. When you separate, there needs to be a review of both parties' assets and liabilities to determine the net family property. This financial review determines the equalization payment for each person. A debt claimed by a party reduces the net family property of the spouse claiming the debt. This directly impacts the proposed equalization payment by either party, reducing or increasing the amount to be paid. But what happens when one party claims an intra-family loan (i.e. a loan owed to a family member), which would have the effect of lowering that party's net family property? What factors will the courts consider, and how would intra-family loans be assessed and determined?

Courts often take a cautionary approach in determining the appropriateness of including intra-family loans in property division calculations because they lack the "arms-length" factor present with institutionary loans, such as a bank. Even if an intra-family loan appears to be properly documented, the courts will determine if it is, in fact, enforceable or likely to be enforced.

Often times, documented intra-family loans are "demand" loans, with no formal request for payment or voluntary periodic payments being made throughout the marriage. If there is a significant passage of time without the loan being enforced, the limitation period may expire depending on the nature of the loan. As noted in Johnson v. Johnson, the party who is a debtor seeking to uphold an intra-family loan as enforceable has the legal burden of proving that the loan is still enforceable despite any apparent expiry of the limitation period.

Where the party who is a debtor appears to be working in unison with the parent or family member that is purported to be a creditor, the court will carefully examine this arrangement in determining whether the alleged loans are to be included in the net family property calculation. This factor was addressed in Stetler v. Stetler and Poole v. Poole, where it was held that a united front with the aim of negatively impacting the other party's rightful claim for equalization must be carefully scrutinized by the court.

In the decision of Stetler v. Stetler, which was affirmed by the Court of Appeal for Ontario, it was decided that where the party alleging the debt had not made any effort to pay it off, and where the alleged parent creditor had not taken any steps to enforce the debt, the full amount of the debt should be discounted to NIL in the property division calculations. Even though the intra-family debt may have a specified face value, if the evidence indicates that it is unlikely that the party will ever be called upon to pay the debt, the value of the debt will be discounted by the Court to reflect that reality.

On the other hand, in the case of Cade v. Rotstein, the Court of Appeal for Ontario upheld the finding that the advance made by the husband's parents to the parties should be discounted to only 5% of the face value, on the basis that the husband's parents were not likely to enforce the debt against the husband, and any enforcement steps against the wife were deemed to be a sham.

Claims of intra-family loans add complexity to a matter, and such loans are to be examined by lawyers early on in the matter in order to properly address the protection of their clients' rights and accurately determine any risks. While some intra-family loans may be deemed as proper, the above decisions illustrate that a need for a closer in-depth analysis is required. These cases will become more prevalent, as increasingly, parents of adult children are assisting with contributing towards the purchase of homes.


When much is at stake, there is no substitute for having the experienced and skilled advocates from Lerners at your side. You need compassion and understanding, but you also need someone to protect your interests. Our Family Law Group tailors its approach and strategy to your goals to achieve the best possible outcome. Our team, located in Toronto, London, and the Waterloo Region, serving the GTA, Southwestern Ontario, and beyond, has the experience to handle matters both straightforward and complicated, without ever over-lawyering or contributing to unnecessary conflict. With a successful track record that includes some of Canada's most complex family law cases, we are focused on getting you results and helping you move forward. Contact us to see how we can help

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