A separation can turn into a nasty tug-of-war over who gets what in the property settlement. The waters are further muddied when it comes to monetary contributions or gifts from family members.
Should these be included or excluded in the asset pool, and should one party get credit for them?
If your parents paid for the wedding, you might be wondering if you can claim it as a contribution to the marriage.
The short answer is – usually not.
When striking property settlements, Judges are looking at contributions made by each spouse to the acquisition, conservation and improvement of the assets in the asset pool.
A payment made by parents for a wedding does not fall in any of these categories, so it usually has no bearing on property settlements.
In some fairly unique situations, there might be relevance, where each set of parents provided gifts of money at the same time, and one family’s contribution was used for the wedding and the other family’s gift was used for a home deposit – in that situation, no credit might be given for the home deposit, because of the circumstances.
It does, however, lead into a bigger question – what about funds received from family and which have been applied to acquiring or improving assets? For example, if your parents helped you buy your marital home, how much of the property gets allocated to each party?
How that financial provision is taken into account will usually depend on the following question – was the advance of money from family a gift, or was it a loan? If it was a loan, there is a further question – is the loan still repayable, or has it been forgiven?
The answer to questions like these depends on the circumstances, and the documentary evidence recording those circumstances. If you can’t resolve a dispute over a gift, you’ll have to take the matter to the Federal Circuit and Family Court of Australia, and have a Judge determine the matter.
That Judge will look at the individual case, asking the following questions:
- Was it a gift to one or both parties?
- Was it a loan rather than a gift?
- Was it a loan that later turned into a gift?
Here’s how the answers to these questions can influence the outcome of your property settlement.
Who is the recipient of the gift?
According to law, gifts and inheritances are, if they found their way into the purchase of assets (such as a home or investments), considered financial contributions to a marriage or de facto relationship.
The first thing the court wants to know is who the gift was intended for. If your parents gave you money for a deposit on an apartment, the starting position is that you receive the credit for it, the assumption being that your parents intended it as a benefit for you, as their child.
This is not always the case, however, and in some situations, the gift from one set of parents may have been to both spouses – words and conduct may have made this intention clear.
In some cases, there has been a contribution made by a spouse which underpinned the gift, making it clear that the donor absolutely intended to benefit them – for example, a spouse may have provided gratuitous health care to their partner’s parent, with that parent then rewarding them with a gift or inheritance in acknowledgement of that assistance. In that instance, the Will might form very good evidence of the donor’s intentions.
In these situations, documents often win the day – if there is an independent piece of evidence which shows the donor’s intuitions that may be compelling in displacing the presumption that the donor intended to benefit only their own relative.
A note of caution here is that gifts made early in very long relationships may end up being of little relevance, such that the impact of this issue falls away over time.
Is it a gift or a loan?
Loans from family members are treated differently from gifts. If a loan is still being repaid, or is genuinely repayable, it will usually be taken into account when assessing the net asset pool available for distribution between spouses.
If you claim that money given to you by your parents was a loan (and not a gift), you need to provide proof to that effect. This can include:
- a written loan agreement with a time frame for repayment
- proof of repayments
- evidence of conduct by lender and borrower which corroborate that the loan remains repayable, such as attempts from the parents to call in the debt, or register security for it
The best way to avoid disputes over gifts or loans during property settlement negotiations is to put the terms in writing at the time the money is advanced.
Your document must clearly state who the money is for and whether it is intended as a gift or loan (and if it is a loan, what the terms of the loan are).
Is it a loan which became a gift?
Sometimes a financial contribution by one spouse’s family starts out as a loan, and has a degree of formality about it, such as a written loan agreement. But years go by, and the family never requires repayment to occur. This is a fairly common situation.
Here, a Judge has the ability to find that the loan advance has been forgiven, and is not repayable. In that situation, it will not be deducted when calculating the net asset pool, and may instead be looked upon as if it had been a gift, and taken into account when assessing the contributions made by the spouses during the relationship.
For family lenders who want to avoid this occurring, they will need to be sure that they live by the terms of their loan agreement – that security is provided, and that loan repayments are made.
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