Property Cases – When a Gift Becomes a Loan - When a Loan Becomes a Gift

03/06/2019

A recurring issue in Family Law property cases is the characterisation of moneys paid by someone who is not the husband or the wife to the husband and/or wife before or during a marriage.  A common example is moneys paid by the parents of one of the parties to a marriage to allow purchase of real estate.  In other words, the parents of one of the parties pay moneys to them to help purchase a home. 

At the time the payment was made the marriage is a happy marriage and the parents want to benefit their child.  Times change and the parties separate.  The property needs to be divided.  Proceedings are likely to be commenced in Family Court or Federal Circuit Court and the parents or other “third party” lenders can become involved in the proceedings. 

It is often the case that what was said to be “gift” at the time the money was paid is later said to be a “loan”.  This might be because the parent or other person paying the money wants their money back or because they think that if they get their money back they could potentially benefit their child and disadvantage their child’s former spouse. 

What is the Difference Between a Gift and a Loan?

A gift is something that is permanent.  Money or property gifted to a person becomes the property of that person and there is no requirement on the part of the receiver to give the gift back.  Once it is gifted the money or property becomes the property of the recipient.  The person who made the gift loses title in the money or the property.

Why Does it Matter in Family Law Cases? 

The Family Court or Federal Circuit Court in determining property cases looks at the contributions made by or on behalf of a party to the acquisition, maintenance and improvement of matrimonial property.  The gift made by one of the spouses’ parents would be a contribution made on their behalf to the acquisition, conservation or maintenance of the matrimonial property.

If the money was only loaned then it is a debt that is repayable.  How, when and where it is repayable would depend upon the terms of the loan (including Loan Agreement).  It might also depend whether the loan was secured over property and most commonly secured over real estate by way of a mortgage.

When is an advancement of money a loan?

Whether an advance of money will be a gift or a loan will depend on the intention of the parties at the time the money was advanced.  If it is intended that the money never has to be repaid the advance will be a gift: If it is intended that the money advanced is to be paid back it will be a loan. 

The Court may be asked to make this decision – Was the money a gift or a loan?

What Type of Evidence Will Prove that the Money was a Loan?

If there is a Loan Agreement signed by the borrower and lender that is clear evidence that the money advanced is a loan.  There are cases where a loan may not have been documented, in other words the agreement is an oral agreement only.  Evidence of the oral agreement can be taken from contemporaneous and perhaps written communications made at the time of the advance of moneys but there must be evidence of a contemporaneous intention that the advanced moneys was by way of loan. 

What should Parents or other Third Party Lenders to Benefit a Child do to Protect Their Interests and the Child’s Interests?

The best way of protecting your interests is to have a written Loan Agreement drawn up at the time the money was advanced.  If the money is being advanced to help purchase land then a mortgage can be taken over the land. 

Often the parties say one thing at the beginning of the relationship and a different thing at the hearing as they see this as a benefit for somebody.

In some cases it is critical to determine whether it is a gift or loan and in other cases it is less critical.

Our Senior Family Law Solicitors at Watson & Watson are experienced in obtaining the appropriate evidence and in particular evidence where one party seeks to assert that what was thought to be a gift, was a loan and can provide the appropriate advice and act in relation to securing and protecting your interests and that of the lender.  If you about to undertake financial/property settlement with your spouse/partner and your parents/family have provided moneys to you for whatever purpose, please contact Richard Watson Senior Family Law Solicitor or Shereen Da Gloria his Personal Assistant to discuss your concerns and receive timely advice to this prevalent circumstance in property/financial matters.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.

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