To Gift, or not to Gift? That is the question
The Australian property market has become increasingly difficult to enter, and it is not uncommon for parents (or family members) to provide financial support to their adult children to facilitate the purchase of a new home. These financial advances may occur when the child is in a de-facto or marital relationship, intended to benefit both of the parties without repayment on the presumption the relationship will continue to exist. However, in the event a relationship breaks down and the parties are faced with a property dispute, parents may quickly try to reclaim their family’s resources before it is shared equally in the property pool. Ultimately, recovering the money will depend on whether it was advanced as a “gift” or a “loan”.
Money that is advanced between a parent and child will generally be presumed to be a gift, and it may be difficult to prove otherwise without a formal written loan agreement. However, the money may still be considered a loan if there is evidence that demonstrates an intention to repay. The Court will consider all the evidence surrounding whether there is an existing agreement prior to dividing the assets, such as previous repayments, informal agreement discussions in email or text message, and /or any demonstrated expectation of repayment from the parties.
When family members give money to one another, it is presumably a gift. A gift is more likely to be contributed by one party, and the Court may order that the contributor receive an adjustment in their favour. However, there is no guarantee that this will happen or that the contributor will receive the full benefit of the gift.
The gift may be weighted differently under the relationship circumstances, for example the length of the relationship, when the contribution was made (before or during the relationship), the party’s income, children, and other liabilities.
It will be too late to suggest the gift was a loan once divorce proceedings are in motion if a lender wishes to preserve their interest by retrieving the funds.
A loan will typically form part of the Balance Sheet in financial/property settlement proceedings, and the Court will include it in the total property pool. For example, a liability of $100,000 will be distributed equally between parties in a way that is just and equitable.
The Family Court may be sceptical of claims of a loan if the terms are not in writing and is more likely to consider financial assistance as a gift if loan arrangements cannot be proven. Yet loans between family members are often be informal and agreed verbally rather than in writing.
A loan can be proved by:
- An agreement made in writing, signed, and dated by the parties;
- Correspondence, such as emails or text messages, detailing repayment terms and interest payable;
- Demonstrated intention that the money is to be repaid and when; or
- Evidence of regular repayments occurring.
Therefore, those who are considering providing financial assistance to a family member to make a financial investment, such as buying a house, should consider obtaining legal advice as to the effect of the advance in the event of a breakdown in the relationship.
Please contact a member of the Cheney Suthers team should you wish to receive further information or advice.