Gift or loan?

I was reading an article recently about the rise and rise of parents helping their adult children to purchase property. Now this isn't a new phenomenon but given rising property prices it may be a trend destined to only increase.

According to the article on domain.com.au parents are supporting their children's home ownership aspirations by something as relatively simple as providing cash through to utilising the equity in their own home.

While the focus of the rest of the article was on the effect this can have on first home ownership statistics (if parents are on the title for the property apparently the purchase can fall through the current definition used by statisticians) it got me thinking about the impact that monies from parents can have on family law matters.

The question of how money from one party's parents is dealt with in considering how to divide the parties assets and liabilities as at separation has been a vexed one for the Court over the years.

The starting issue is whether the monies are a gift or a loan. Answering this question comes down to the evidence.

If there is a contemporary, written loan agreement than that may be good evidence of the money being a loan. Otherwise it can become a question of whose evidence is to be believed.

However, it is important to remember, even if the Court concludes that it was a loan, that the Court still has discretion as to the amount that is to be included as a liability of the parties.

For example, there may be situations where loans are made on favourable terms and not at arms length - such as where there is no interest payable or there is no fixed payment schedule. In such circumstances the Court may reduce the effective amount repayable.

In the matter of Sulo and Colpetti [2010] the Court did not include the husband's loan to his father at all as there was no evidence that the husband's father was intending to actively pursue a claim against the husband for the monies.

In circumstances were the money is a gift - either because that was always the intention or because the Court does not accept that it was a loan - the Court then needs to consider what effect if any the money has on determining the contributions made by the parties.

In some cases, such as Pellegrino and Pellegrino (1997) the Court was asked to consider the issue in the context of the parents giving the money intending to receive a benefit themselves (in that case for an extension where they were to reside).

That is, however, the exception and in the majority of matters the monies have been given to benefit the parties to the relationship.  

In the case of Gosper and Gosper (1987) the Court stated that determining if the monies where intended to benefit both parties to the relationship or only the adult child is the starting point.

In Kessey and Kessey (1994) the Full Court stated: "a contribution by a parent of a party to a marriage to the property of the marriage will be taken to be a contribution made by or on behalf of the party who is the child of the parent unless there is evidence which establishes it was not the intention of the parent to benefit on his or her child."