Is it a Gift? Is it a Loan?
When considering a number of complex factors for a property settlement upon the breakdown of a relationship, there are two which give rise to the blurring of a line; Was it a gift or a loan?
In many relationships, one party receives a sum of money to assist that party financially into the future. Maybe for a deposit on a house; for renovations; for living expenses; to buy a business. Whilst the relationship is in tact, this financial assistance is all “well and good” and the parties move forward with their lives.
What happens when the relationship breaks down? Individuals go in to self-preservation mode:-
- The family members that made the financial advance allege this money was a loan and needs to be repaid on settlement so that ultimately their child will be provided with the funds again;
- The party that received the funds alleges the money was a loan so that it is taken into account on the property pool balance sheet as a liability to be repaid or assumed by that party to ultimately receive a greater distribution of the other assets in the pool;
- The other party alleges the funds were a gift, although this then becomes a contribution by the other party and is taken into account when considering the contribution elements.
Planning plus Preparation is the key to Protection
Financial arrangements between family members are usually not documented. In matters where clients come to us with clear evidence of the intention of the advance of funds, time spent discussing the issue and ultimately the client’s costs spent on discussing the issue are reduced – this is a good thing.
Steps to Protection
- Formalise it in writing. A loan agreement is able to be prepared which documents the borrower, the lender, the amount and the terms of the loan, such as when repayments are to be made.
- Follow your rules. To be able to rely on the loan agreement, the terms should be adhered to. If the terms require payments to reduce the loan at a certain amount, then ensure the payment is made. If you are the borrower pay it; if you are the lender, enforce the payment obligation.
- Is security a consideration? Seek legal advice as to securing a mortgage against the property for which the loan was made.
- Review, review, review. Circumstances change significantly over the course of a relationship. Consider reviewing the loan agreement at regular intervals and particularly if there is a change in circumstance, such as the sale of the property and purchasing of a new property.
If you seek advice regarding your family law matters, we invite you to contact McLaughlins Lawyers today on (07) 5591 5099.
Author/Director: Sophie Pearson