Gift or Loan - What is the Law in Family Law?
By Tanya Morris
Imagine this, your parents loan you $300,000 to buy your first home, you and your wife are going through a property settlement and now she says it was a gift, not a loan.
Property settlement between separated partners requires identifying the property pool, that is all assets, liabilities and financial resources you have, both jointly and solely. It is the net value of the property pool which is distributed between you.
A loan owing to parents would be included in the property pool as a liability, so what happens if your former partner says the funds were a gift and not a loan to be repaid?
Loan or Gift?
When the Federal Circuit and Family Court of Australia are faced with the task of determining whether there is a “loan” or “gift” in these situations the Court must consider the “presumption of advancement”. A parent-to-child relationship gives rise to the presumption of advancement. This is the legal presumption that a transaction is presumed to be a gift. The presumption however can be rebutted.
So what will rebut the presumption of advancement?
Each case is assessed on its own facts, but considerations by the Court may include:
- Is there a written loan document?
- Is there security for the loan, such as a registered mortgage?
- What was the intention of the parents at the time of giving the funds?
- Has the loan been called on for repayment?
- What are the terms of repayment?
- Is there evidence of any repayments?
- Is there evidence to support that both separated partners accepted the funds that were loaned?
- Is there evidence of representation to third parties (such as a bank) about the funds being given as a loan or gift?
- If parties had not separated would the loan have been called for repayment?
- What is the likelihood of the loan actually being repaid?
- Has the limitation period expired for the loan to be an enforceable debt?
Who has to prove the loan?
The onus to rebut the presumption lies with the person arguing the transfer of funds is a loan, not a gift.
To be successful in rebutting the presumption there will need to be evidence that is inconsistent with the presumption applying.
Was the presumption not rebutted?
The law for property settlement generally follows a five-step approach as determined in the decision of Stanford v Stanford  HCA 52.
Broadly the steps are as follows:
- Consider whether it is “just and equitable” for there to be an adjustment of property ownership;
- Determine the property pool available for distribution;
- Assess contributions by each party;
- Assess the future needs of each party; and
- Consider whether the proposed distribution is “just and equitable”.
If you are unsuccessful in rebutting the presumption and the funds are considered a gift, the funds will be considered during the assessment of contributions. Where parents gift funds, the contribution is to be taken as a contribution by the child of the parent unless there is evidence that it was not the intention of the parents to benefit only their child.
The onus to prove the gift was not intended to only benefit you, but you and your former partner lie with your former partner.
We can help
Our Family Law Team can provide you with comprehensive and specific advice about property settlement with your former partner. Contact our Family Law Department, if you would like to arrange an initial consultation.
Our Commercial Team can provide you with comprehensive and specific advice about transactions and agreements between families, assist with preparing a Deed of Gift or formalise a Loan Agreement.