Did my parents just give me a gift or a loan?

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Gift, loan… who cares?

In Australian law, there is a presumption that monies provided to another person are a gift, rather than a loan when:

  • Provided from parent to child
  • Provided from husband to wife

Interestingly, in the second example the reverse, that is, from wife to husband, is not the case. …gotta’ love old English law.

 Therefore, if the intention has been to provide a loan, there should be quality supporting material to prove to the satisfaction of the Court that such is the case, otherwise, it will be presumed to be a gift. Does it matter?


Bank ‘Mum and Dad’

 In recent years, with rapidly rising house prices, many parents have been able to provide financial assistance to a child to enable purchase of a property. Invariably, the offspring will be in a relationship, either married or de facto.

 There are many other scenarios of course including to assist with renovations, or begin a new business or expand an existing one. The reason doesn’t matter, either way, funds are provided.

 All well and good, and invariably such monetary events within the family are discussed and decided upon informally. A group hug, tears of appreciation, and the money is later transferred. After all, we are all family now, right?

 Sadly, many relationships break down, and things end up in the Family Court. Potentially, this can be several years after that initial provision of funds, and without documented evidence, the details can all become a little hazy.


Down to the nitty gritty

Where funds have been provided as a gift to one party in the relationship, it is presumed that the funds have been provided for the benefit of both, and form part of what the recipient child has contributed to the relationship. This amount, along with the other assets of the relationship, will be appropriately apportioned by the Family Court as part of the property settlement phase.

However, it is possible that with the clarity of hindsight, the parents and recipient child would prefer that the money had been a loan. This would then be treated as a liability and repaid from the joint assets of the couple during the settlement. Some have sought to put in place loan documents after the horse has bolted. While this is possible and legal, it is far from convincing, and is reasonably seen by the courts as nothing more than a veiled attempt to rejig things to suit the circumstances. Cases exist where the courts have rejected these claims and determined that the transaction was in fact a gift.

Courts will also look at the whole gamut of available evidence: notes taken after family conversations, emails, letters, annotations in diaries: repay Mum and Dad. However, particularly after the passage of significant time, these things all tend to become lost for quite legitimate reasons. Failing to attain such evidence, the Courts can only use their best judgment, with the default position being gift.

Far better to firmly establish the circumstances in writing at the outset. It is essential to nominate at the least:

  • The amount of money
  • Applicable interest rate, if any
  • Repayment terms and timeframe
  • Purpose of the loan
  • The parties to the loan

 And if the intent was to provide a gift, formalise that as well. Keep it simple, get it right, let a lawyer handle it. Family Law – Estate Planning – we know it. It will be easier with sound legal advice from the experts. Owen Hodge Lawyers. We are here to help. Contact us today on 1800 770 780 

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