Is it a gift or a loan? How gifts and loans are treated in family law matters

It is not uncommon for parents of a child to give their child a gift of money to purchase a property with their spouse/de facto partner, only to have their children separate after the purchase of the property.

How does the Family Court/Federal Circuit Court treat gifts and loans in family law matters when the parties have separated?

Generally, it depends on a number of factors such as:

  1. Was the gift made to both parties or to one person? If it was made to one person then it is likely that the gift would be considered a contribution on the part of that person to the relationship;
  2. How long ago was the gift given? The older the gift, the less weight is attributed to it in assessing contributions of the parties to the asset pool;
  3. Is there evidence of an intention for what the gift is for? It is recommended that along with the gift there is a letter or a note in writing stating what the gift should be used for. Keep a copy of it for your records;Is it a loan instead of a gift?
  4. If it is a loan which is repayable from the child to the parent, it is advisable to have a loan agreement or a financial agreement between the parents, the child and their spouse/de facto partner, stating the terms of what the repayments would be, when the final payment should be etc.

Some spouses/de facto partners have claimed that monies provided to them by their parents are a loan and therefore it is a liability instead of an asset. Generally these “loans” are repayable “on call”, but in reality, the parents would not expect repayment of these “loans” from their children.

The Court may not accept that a “loan” is a genuine loan unless it is properly documented and there is some evidence of repayment and security for the loan.

Speak with one of our lawyers today to enquire about your options on how to protect your gifts to your children!

This article provides information that is general in nature and is not a substitute for legal advice.