Financial Assistance by a Parent – What are the ramifications on property settlement?

01/09/2016

Parents commonly provide financial assistance to their children to enable them to purchase a property. Frequently those children are in a relationship, and the money becomes intermingled in that relationship. What happens when the relationship breaks down and a property settlement is inevitable?

This is a common occurrence with parents often offering financial assistance to their children for example to enable them to purchase a home.  At Watson & Watson we receive many enquiries from clients who are faced with this very dilemma. However most enquires tend to be after the fact however on occasions, we will be approached for advice where parents are intending to assist their children financially.

One thing that could happen is that the parents are joined as parties to court proceedings and are put to the trouble and expense of engaging lawyers and appearing in court.

If the parents are not on title to the property a frequent approach is to argue that in the absence of consideration, title is held on a Resulting Trust. The difficulty with that approach is that the law presumes that it was a gift – the so-called Presumption of Advancement. That puts the onus back onto the parents to rebut the presumption by proving a contrary intention at the time of acquisition of the property. With the passage of time memory fades, people pass away and business records are destroyed. In Stepanov & Stepanov [2015] FamCA 1123 the court was persuaded that conversations between the parties at the time of acquisition of the property were sufficient to rebut the presumption. It is suggested though, that it is a bit of a lottery expecting a court to believe one person’s version of a conversation over another’s, especially when that conversation occurred many years ago.

Another common strategy is to create loan and security documents at the time of acquisition of the property, such as a registered mortgage. This also has problems. For example if there is no time stipulated for repayment of the loan, no interest is payable and no repayments are in fact paid the court may disregard the debt on the basis that it is not really expected to be paid and unlikely to ever be enforced. In a recent case (Rodgers & Rodgers [2016] FamCAFC 68) the Full Court of the Family Court of Australia explained the principle as follows:

Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect “contribute” to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79

Pulling all of the above together, it is suggested that a parent who advances money to a child towards the purchase of a property should clearly document the arrangement at the time, so as to overcome the difficulties that faced the parents in the cases described above.

If you are faced with a property settlement and your parents have made a financial contribution to you and your partner/spouse or if your parents intend to provide financial assistance to you and your spouse/partner for example for the purchase of a home, please do not hesitate to contact Richard Watson our family lawyer who can provide advice and assistance to you and spare your parents the expense and stress of being embroiled in possible future litigious proceedings when they were simply trying to help.

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