When a couple separates, often the Court will need to determine whether funds provided to the parties during their relationship by their respective parents were ‘loans’ or ‘gifts’.
This determination is important in a property settlement matter, because if it is found that the funds were a ‘loan’, then this is found to be a liability of the relationship and is included as a debt when calculating the total asset pool of the parties.
On the other hand, if it is found to be a ‘gift’ then the amount will be included as an asset when calculating the total asset pool of the parties, and is presumed as a contribution to the relationship from the party whose parents provided the funds. This may result in that party obtaining a larger share of the net property pool, however it is important to remember that there are numerous factors which will be considered, including the length of time since the gift
was given, which may dilute the value of the contribution.
In many circumstances, it would appear that parents would have preferred to provide the funds to the parties as a ‘loan’ rather than a ‘gift’.
Therefore it is imperative that if you are intending on lending money to your children and their spouses, that the loan is properly documented by way of a loan agreement specifying the terms and conditions of the loan, and that there are clear evidentiary records of the initial loan amount and any payments which have been made during the course of the
relationship.
Although this may create an uncomfortable situation, it will protect your interests in the future should the parties separate and your child’s spouse seeks to dispute the existence of the debt in property settlement proceedings.
Affinity Lawyers are able to provide you with legal advice tailored to your specific circumstances, so please do not hesitate to contact our office on (07) 5630 6888 to discuss your matter.
