A common issue that arises in property settlements between separated couples is how to recognise gifts made to one or both of the spouses during the course of their relationship.
With rising house prices it is now becoming quite common for parents to provide financial assistance for their son or daughter and their respective partners in the purchase of their first home. While this can involve quite significant sums of money, it is rarely the intention of either party to create legal relations by virtue of the contribution. There may be some general agreement or understanding at the time that the money will be re-paid but this is rarely documented and the money is usually not lent on commercial terms.
In circumstances where the couple go on to separate there can be a dispute about whether such funds from their parents ought to be considered to be a loan or a gift and if a gift to whom and to what relevance. Family Courts set a fairly high threshold for money advanced in these circumstances to be considered a loan or at least a loan that will be enforced.
Firstly, there is a presumption that no legal relations or obligations are intended to be enforced. This presumption can only be rebutted by evidence such as an enforceable clear loan agreement that had been complied with to date and to which resembles something close to commercial terms of lending. Otherwise, the monetary contribution by the parents would be considered a gift.
Unless clear evidence that the gift was a gift to both parties of the relationship and intended to benefit both parties to a relationship the gift will be considered to have been a contribution on behalf of the parents’ son or daughter. This is relevant to the overall percentage entitlement of property of that party to the marriage or relationship.
While gifts are relevant to one’s percentage entitlement, it is rare that a party will receive the benefit of that gift dollar for dollar in the terms of settlement. Family Courts usually do not act with such mathematical precision particularly for the long relationships where there have been significant non-financial contributions by both parties. Indeed for gifts made at the commencement of the relationship cases have held that the benefit of those gifts has largely if not entirely eroded over time due to the contributions made by the other party or both of them in the years that have followed.
Factors that affect the weight to be given to gifts from third parties are as follows:
- The monetary value of the gift.
- The date of when the gift was made.
- The context of the gift.
- Whether the gift from the third party was at least in part recognition of some contributions that the other party of the relationship may have made.
- The value of the gift as compared to the value of the overall pool of assets to be divided.
In summary, when a financial contribution is made it is very important to firstly establish whether such contribution could be considered a loan having regard to the high threshold set by Family Courts. If it is clear that it is a gift then there needs to be plenty of information gathered as to the above factors above so that the gift can be given proper weight in settlement negotiations. For help with situations like this call the Family Law team on 03 5445 1000.