Loans and Gifts offered by parents in family law. Is there a difference?

 

 

Parents are often eager to help their adult children setting up home with their new partners. As parents, wanting to see their child build a solid financial future is natural. Which is why providing money, whether as a loan or a gift, towards the purchase of the couple’s first home is common. With the median property price for a home in Brisbane apparently exceeding $600,000, it is not surprising that for many couples starting out, breaking into the property market would not be possible without parents’ financial support.

At other times, parents may help out with finance for a new car; the cost of braces for the youngest grandchild or towards renovations for a new kitchen.

For the parents, it is a wonderful thing to be helping to set their child up for the future or simply to be making life just a little easier where possible. For the lucky recipients, it is often a welcome stress relief and unexpected boon.

Sometimes, a parent may expect that that the money will eventually be repaid. On other occasions, money may be intended as a gift, without any expectation on the parent’s part that it will be repaid.

Even where there may be some broad understanding that monies will be repaid, it is often the case that there is no written agreement or even correspondence that shows that this is what parties intended.

Difficulties can arise years later however where the couple may decide to separate or divorce. The money that the parents previously provided the couple may become an issue in their property settlement. Parents may at that point become concerned that that amount be repaid to them or at the very least that that amount be “credited” in favour of their child in the property settlement.

Why does it matter whether money is provided as a gift or a loan?

Many different factors are important at law in determining what property is available for division between former partners and entitlements of each party. For more information on this topic, see our Property Settlement Law page.

In Family Law, debts of the relationship are taken into consideration and reduce the net asset pool available for division between a former couple.

If a family member provided money to a former couple or their relation by way of a loan, then it may be viewed as a joint debt of the relationship. The balance owing will then be taken into account as a debt of the relationship requiring payment. This means the actual amount owing to the family member is deducted from the assets available for division between the parties.

If, the money received from a family member is characterised as a gift,the money gifted will be treated as a financial contribution made by the partner whose family member provided the original funds. That partner may then expect that some adjustment from the asset pool may be made in his or her favour.

It is important to note however that the partner whose family member provided the original funds is unlikely to receive a dollar for dollar adjustment in his or her favour for the amount of the original gift.

In some cases, when money is gifted very late in the relationship, the gifted amount may be quarantined in favour of the partner whose family member provided the original gift or the monies may be excluded from the pool of assets being divided between the former partners. However, whether this will occur will depend on many different factors, including at what stage in the relationship it was received. However, there is no guarantee that money received late in a relationship will be excluded by the Court when determining what property is available for division and how it should be divided.

It is not uncommon after separation for a dispute to arise in relation to whether money received from family members was a gift or a loan. Clearly, one partner will benefit if their family member receives their money back and then they receive their entitlement from the reduced asset pool, only to have the money re-gifted or the debt waived once the property settlement with their former partner is finalised.

Where there is a dispute whether monies were provided by way of loan or gifted, a Court will closely consider the terms of the arrangement in order to ascertain whether the money was intended as a gift or whether it actually is a debt of the relationship and should be repaid by the parties.

Is it a gift or a loan?

The Court will consider all of the circumstances surrounding the transfer of the money, including but not limited to:

Whether there is a written agreement providing the terms of a loan;
Whether there is a finite loan period or a date/s for repayment;
Whether there have been any repayments made;
Whether there have been any requests for payment from the alleged lender prior to separation;
The purpose or intention behind the transfer of the money;
at what stage of the relationship it was received;
How many years it has been since the money was provided and whether subsequent actions (or inaction) has changed the nature of the initial agreement;
Whether the alleged loan is secured by way of mortgage or charge; and
Any other relevant factors.
If you are intending to loan a family member who is in a relationship or marriage some money, or you are the recipient of an inter-family loan, all parties should obtain independent legal advice and ensure that the loan is appropriately documented before any funds are provided.

If you would like more information on how to determine whether monies are likely to be characterised as a loan or a gift, please do not hesitate to contact LGM Family Law. Or call us today for a free 15 minute consultation.