It is common for parents to generously offer financial assistance to their child, whether it be money or even a property.
Naturally, this generosity is informal, often not documented and relies on the trusting relationship between the parent and child. At the time, parents do not consider that their child’s marriage could break down and do not take into account the affect this has on the money or property they gave their child.
What can happen to the parents’ contribution?
If the child’s relationship breaks down, then we must question how the contribution is handled in a property settlement. The Court can treat the contribution in two ways:
- The Court may consider the contribution to be a loan that is to be repaid to the parents; or
- The contribution was made by the parents with no repayment expectation.
The other party will often argue that the contribution was a gift because then it will form part of the asset pool to be divided between the parties. Alternatively, if there is clear evidence that the child must repay the contribution then the Court may accept that it was a loan.
What evidence is sufficient for a loan?
You will need to consider whether there were any oral or written terms regarding the contribution, whether a written loan agreement exists, if security was taken for the loan, or any record of repayments. Having formal loan documentation in place often increases the likelihood that the Court will find the contribution to be a loan. However, if there is little evidence to support that the contribution was a loan and no repayments were previously made, then it will be difficult to satisfy the Court that the contribution was a loan, and it will likely be treated as a gift.
It can be confusing to know whether the contribution from your parents is a loan or a gift. So, leave it to our experienced Family Law Team to provide you with the right advice.
If you would like to seek some clarity, call us on (08) 7001 6135 for a confidential chat.