• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Phone: 3465 9332

Logo
  • Home
  • Our Team
    • Courtney Barton – Legal Practice Director & Founder
    • George Finn – Executive Director
    • Ellie Prior – Solicitor
    • Tenayah Miano – Paralegal
  • Our Services
    • Divorce Property Settlement Lawyers
    • Family Law Spousal Maintenance
    • Superannuation Splitting & Advice Lawyers
    • Child Custody Lawyers
    • Child Support Lawyers
    • Child Relocation Family Lawyers
    • Child Abduction Family Lawyers
    • Fixed Fee Consent Orders Brisbane
    • Binding Financial Agreements
    • Fixed Fee Divorce Lawyers
    • Domestic Violence Lawyer – DVO Domestic Violence Order
    • Child Adoption Lawyer & Advice
    • Family Court Process
    • Family Mediation Services Brisbane
  • Fixed Fees
  • Common questions
  • Family Law Videos
  • Family Mediation
  • Contact Us
  • Success Stories

My Parents lent me money. Is it treated as a gift or a loan?

November 16, 2018 By Barton Family Law

Have your parents provided you financial assistance either before or during your marriage? In this article, we help answer the question, is it treated as a gift or a loan?

Given the significant cost of housing, financial assistance provided by parents for the purpose of assisting their child to purchase a property is becoming increasingly common.

Loans from parents to children are usually unsecured, informal and not in writing, relying on the trust and relationship between the parent and child.

When parties enter a relationship and/or marry, it is rare for them to put thought into how their parents might be protected in relation to repayment of the loan, in the event of the parties separating.

However, in a family law context, there can be severe consequences for you if this well intended financial assistance by your parents is not properly documented and there is no evidence of repayment of the loan.

What happens if you and your partner separate?

Whilst parents are completely upfront with their intention when advancing funds to you and your partner that the loan is to be repaid, disputes often arise in a family law context over the terms of the loan if the relationship between you and your partner ends. Naturally, upon the breakdown of a relationship, you will maintain that the advance provided by your parents is a loan to be repaid from the asset pool whereas your former partner will maintain that the advance was a gift made by the parents and the value of the  gift is to form part of the asset pool.

If your former partner is not prepared to accept that the funds advanced were a loan, then your parents can often end up being dragged into your property settlement in the Family Court and may be required to incur significant legal costs to engage their own legal representation to argue that the advance was a loan or to intervene as a party to secure an order for repayment of the loan.

If the Court deems the advance a gift, then the advanced amount forms part of the asset pool to be divided between the parties and the child whose parents advanced the fund may be entitled to an adjustment for that contribution. However, and more importantly, your parents will not be repaid and will lose their money.

Read on to find out how the Family Court determines whether to treat the financial assistance as a gift or a loan.

The Family Court’s Position: Is it a gift or a loan?

When parties apply to the family court for property orders, the Court takes account of the assets, liabilities and superannuation in each party’s name.

Liabilities incurred before or during a relationship are considered to be liabilities of the relationship, regardless of when accrued or whether they are in joint names or only one name.

Where the liabilities of the relationship include an unsecured debt owed to family members, that is not documented, this creates difficulties in a family law context. The Family Court is generally skeptical when a claim of a loan arises from a family member, where there is no solid evidence to support that the loan exists, that it is repayable, and that a call is likely to be made for payment of the loan in the future. In these circumstances, the Court is unlikely to accept the money was a loan and may disregard the debt entirely. The Court may disregard the debt even where it is considered to be legally enforceable if the debt is not in fact enforced or expected to be enforced.

In Biltoft & Biltoft Judge Nygh stated as a matter of principle:

“In taking account of the ‘obligations’ of the parties, I must consider how pressing such an obligation is. It is fairly common in this Court to meet a situation where a parent has made a loan to a child which is in all respects legally enforceable, but which is not in fact enforced and would not really be expected to be enforced. It is no doubt an ‘obligation’ but if the obligation is not likely to have to be met, it should not be taken into account.”

Case Example: Damiani & Damiani [2012] FamCA 535 

Facts

  • Prior to cohabitation and marriage with the Husband,  the Wife and her parents brought a unit;
  • The Wife’s parents provided the Wife with the sum of $50,000 to assist her in acquiring her share in the unit;
  • A few years thereafter, once cohabitation with the Husband had commenced, the Wife and her parents signed a loan agreement recording the debt owed to her parents of $50,000;
  • the loan agreement provided that ‘the borrower shall repay the principal sum to the lender upon written demand’ and there was a provision for the payment of interest;
  • The Wife gave evidence that there had been no repayment of the loan to her parents during the relationship or following separation;
  • The Wife’s Father said that there was no demand ‘at the moment’ for repayment of the loan on the basis that the Wife had not since separation been in a position to repay it;
  • Notably, the Wife had initially forgotten to refer to the debt to her parents of $50,000 as a debt in her financial statement filed with the Court.

Decision

  • It was suggested by the Husband’s solicitor that given the Wife had failed to refer to the debt to her parents of $50,000 in the financial statement, that the documents evidencing the loan were not documents that she took seriously;
  • The Court referred to the case of Biltoft & Biltoft that generally unsecured liabilities would be deducted from the value of assets when ascertaining the value of a property pool, this practice being subject to certain exceptions available in the Judge’s discretion, including whether or not the debt is likely to be enforced;
  • The Court held however that while the debt was actionable (i.e. enforceable, by virtue of it being payable on demand and not statute barred) the Wife’s parents were unlikely to call upon the debt any time soon, if at all.

The take home message

When a Court determines whether a sum advanced is a gift or a loan to be included in the pool, the court looks to:

a.  Whether the loan is documented;

b. Whether there has been a call for repayment of the loan;

c. Whether there has in fact been some repayment of the loan;

d. Whether there is likely to be a call for repayment of the loan in the future by the person who loaned the money.

If you want to protect your parents and yourself in relation to the treatment of a sum advanced as a loan, we therefore suggest that you have the loan documented in writing including with respect to any terms of interest, to avoid any doubt about the intentions of the parties. Your parents may also wish to have the loan secured by a registered mortgage over your property. Furthermore, we recommend that you make regular and ongoing repayments to your parents of the loan, during the relationship and following separation. Repayment of a loan after property settlement proceedings are commenced may be seen by a Court as a non-genuine attempt to portray that a loan is repayable, when in fact there was never a genuine attempt by your parents to enforce repayment of the loan.

If your parents have lend money to you, we strongly advise you to do the above, so as to better protect you and your parents against the reach of the Family Court.

Are you in a situation where you have separated, your parents have lent you money for the purpose of a property and you are not sure whether it would be treated by a Court as a gift or a loan? Contact us to have a book a reduced rate consultation with our family law expert, Courtney Barton, to have a confidential discussion about your individual circumstances.

 

 

Filed Under: News

Barton Family Law

Primary Sidebar

Online Enquiry

I would like to book a reduced rate initial consultation with you

Footer

Areas of Practice

  • Child Custody Lawyers
  • Divorce Property Settlement Lawyers
  • Fixed Fee Divorce Lawyers
  • Domestic Violence Lawyer – DVO Domestic Violence Order
  • Superannuation Splitting & Advice Lawyers
  • Fixed Fee Consent Orders Brisbane
  • Mediation Representation
  • Child Relocation Family Lawyers
  • Child Abduction Family Lawyers
  • Child Support Lawyers
  • Family Law Spousal Maintenance
  • Child Adoption Lawyer & Advice
  • Family Court Process
  • Family Mediation Services Brisbane
  • Binding Financial Agreements

Common Questions & Concerns

  • How to spend more time with your children
  • What is substantial and significant time 
  • Parental Alienation in Family Court Disputes – Pt 1
  • Parental Alienation in Family Court Disputes – Pt 2 
  • Top 10 things people do wrong in child custody matters
  • What age can a child decide where they live?
  • Admissibility of recordings in family law cases 
  • Am I a parent?
  • I’m Not a parent. Can I apply for a parenting order? 
  • I want sole custody
  • Can I go to court without doing mediation first?
  • Can parenting orders be changed? 
  • Relocation of Children
  • Interim relocation of children cases
  • Unilateral relocation of children
  • International travel with children after separation
  • My ex is breaching a parenting order. What do I do? 
  • When is supervised time ordered?
  • Is a child’s changed views enough to change a parenting order? 
  • Interim parenting orders – why can’t the judge make the orders I want? 
  • When can you change your child’s surname?
  • What is substantial & significant time?
  • Domestic violence order applications – boosting prospects of success
  • What to do and what not to do when you separate
  • Why you should formalise your property settlement;
  • Is Domestic violence relevant in a property settlement?
  • 6 secrets revealed to protect your assets 
  • 10 tips to protect your assets
  • 6 things you must know before hiring a family lawyer
  • Your Duty of Disclosure 
  • Spousal Maintenance – supporting your ex partner after separation 
  • Initial contribution of assets in a long relationship 
  • What is the just and equitable requirement?
  • Chancellor & Mccoy – no order after 27 yr relationship
  • Am I in a de facto relationship?
  • My ex is selling assets. What can I do?
  • Property acquired after separation – how is it treated? 
  • When are future inheritances they taken into account?
  • Failure to disclose an asset can derail consent orders 
  • Consequences of Defaulting on property orders 
  • Varying property orders 
  • Who stays in the home after separation?
  • Can the court order someone to leave the house – ouster orders 
  • Money lent from parents – gift or loan?
  • The impact of centrelink fraud on a property settlement 
  • CGT rollover relief for transfers of property pursuant to family court orders 
  • Costs orders 
  • Divorce – what you need to know
  • Going back to work after divorce 
  • Step-Parent awarded interim custody over parent 

If you are a law student, graduate or early career lawyer, reach out to Courtney who is also a law Coach. Courtney’s law coaching services are invaluable to young lawyers. Courtney’s one on one law coaching services will help you to achieve massive success in your legal career.  Check out Courtney’s website for the Thriving Young Lawyer to learn more about Courtney’s law coaching services.

Individual liability limited by a scheme approved under professional standards legislation.

Contact Us

Head office

  • Address: 4/996 Anzac Avenue, Petrie QLD 4501
  • Parking: Underground parking available at the back of the building via O’Loan Street
  • Phone: 3465 9332
  • Email: george.finn@bartonfamilylaw.com.au
  • Website: Petrie Family Lawyers

Northside – Chermside Office

  • Address: 822 Gympie Road, Chermside QLD 4032
  • Phone: 3465 9332
  • Email: george.finn@bartonfamilylaw.com.au
  • Website: Chermside Family Lawyers

Aspley Office

  • Address: Aspley Hypermarket, 59 Albany Creek Road, Aspley QLD 4034
  • Phone: 3465 9332
  • Email: tenayah.miano@bartonfamilylaw.com.au
  • Website: Aspley Family Lawyers

Toowong Office

  • Address: Toowong Tower Level 5, Toowong Tower, 9 Sherwood Road, Toowong, QLD 4066
  • Phone: 3465 9332
  • Email: tenayah.miano@bartonfamilylaw.com.au
  • Website: Toowong Family Lawyers

Copyright © 2020 · Privacy Policy
Created and hosted by LEAP · Log in