Gifts & Loans in Family Law Property Settlement Cases

It is not uncommon in a relationship for a family member, usually a parent, to give a party a sum of money for the party’s benefit. When it comes to family law, the issue regarding that sum of money often arises as to whether it amounts to a gift or a loan.

Loans

A loan is characterised by the expectation that the sum given to a party is to be paid back to the person who leant the amount. A loan is treated as a liability in property settlements, being an amount that is to be repaid before division of the property pool.

The party asserting that the sum of money was a loan has the responsibility of proving that it was a loan, as opposed to a gift.

Gifts

A gift is characterised by an absence of expectation for the party to repay that sum of money to the giftee. In property settlement matters, such payments can still be considered, however, they will be seen as a contribution as opposed to a liability.

Evidence Required

The Court can consider a variety of evidence to establish a loan including:

A written loan agreement.
Terms in relation to repayment including interest payable.
Whether the loan was registered on the property dealing, such as a caveat or registered mortgage.
The intention of the person/s who leant the money.
Evidence of payments made in accordance with the agreement.

If there is no written evidence of the loan, the agreement is vague or there has been no attempt to repay the loan, the Court may consider the payment to be a gift as opposed to a loan.

If the matter is in Court, the loaning party may apply to the Court to join the proceedings regarding the asserted loan.

Case Law

In the case of Maddock & Anor (No.2) [2011] FMCAfam 1340, the husband’s father paid the husband and wife a sum of money towards their purchase of the marital property.

The Court found that the money was a gift as opposed to a loan as there was no written agreement, terms of repayment, no repayments made or requests from the lending party to repay the amount. However, the Court instead treated the money as a significant contribution by the husband.

In the case of Pelly & Nolan [2011] FMCAfam 530, the husband’s father had paid a sum of money to the husband and wife to purchase a marital property, as well as regular payment for living expenses.

The Court found that the money paid towards to marital property constituted a genuine loan due to evidence of a loan agreement including terms of repayment. However, the money paid towards living expenses was treated as contributions by the husband.

If you are considering gifting a sum of money or are anticipating receiving money and would like advice, please contact our firm to make an appointment with one of our family lawyers on (02) 4944 3322.