Loan v Gift – Bank of Mum and Dad
Written by Dannielle Wright
With the cost of living continuously increasing and property prices on the rise, it is no surprise that parents are providing financial assistance to their children. This could be by way of contributing towards their first home deposit, assisting with big purchases, such as a car or providing general financial aid.
However, such generosity is rarely recorded and can make all the difference in a family law dispute.
The distinction between a loan and a gift has an impact on the way the Courts determine the property pool. If the advancement of funds is categorised as a gift, the Court will assess the gift as a direct financial contribution by the party whose family gifted it. This will result in an adjustment being made in favour of the party who received the gift. On the other hand, if the Court assesses the advancement of funds to be a loan, the overall property pool is reduced as the loan is deemed to be a joint liability of the parties and as such deducted from the net assets of the parties.
A practical example is as follows:
A disputing couple’s property pool consists of a total value of $500,000 with each party to receive $250,000 in a 50:50 split. However, during the relationship, the wife’s family gave her $100,000.00 to contribute to the purchase of the matrimonial home. Now, post separation, the wife’s family is claiming that the $100,000 was in fact a loan and was required to be repaid. As such, this liability reduces the property pool to $400,000 leaving each party with $200,000 in opposed to $250,000 should the loan not have been included.
Precedent demonstrates that the family law courts are reluctant to accept that a child has a loan owing to their parents unless there is clear evidence of their parents’ expectation of repayment.
In the case of Maddock & Anor (No.2)  FMCAfam 1340, the Court described several characteristics that assist in the determination of a loan rather than a gift, these being:
1. Whether there was any formal loan agreement between the parties;
2. Whether regular repayments were made like one would to a financial institution;
3. Was any interest to be paid on the loan; and
4. Were there any demands for repayment prior to separation.
The information provided in this article is general advice only. It is recommended that if you are going through a family law property dispute or are a parent wanting to loan your child money, you contact our office for proper legal advice that is suitable to your specific situation. You can contact a member of our team on (03) 9311 8911.