Treatment Of Loans In Family Law Cases

betinacrockerWith housing prices booming and the cost of living increasing, parents especially often want to help their adult children during their relationship to buy a house or establish themselves. But how is the money treated upon a separation? How does the Family Court treat loans advanced by family member during a relationship if that couple breaks up?

Often one party will be seeking the return of the money to be repaid to their family on a “dollar for dollar” basis whereas the other party will want to classify the money as a gift or not counted at all. These are often difficult questions that form part of the negotiations upon the breakdown of a relationship when third parties have made significant financial contributions during the relationship.

As part of any property division, the Family Court will need to assess any liabilities of the relationship, which may include any debts that may be alleged to be owed to extended family members. Some of the factors the Court will look at in determining whether money advanced is a loan includes:

  1. Whether there is any formal loan documentation between the parties and when this was created?
    eg. Post separation documents are usually going to be viewed fairly sceptically.
  2. What evidence is there of the money being paid? eg. Bank statements.
  3. Whether any interest or principal payments have been made during the relationship on the loan?
  4. Whether a caveat/charge or other security has been provided for the loan?
  5. How long the loan has been outstanding?

The Court will also take note of other informal factors such as any conversations about the nature of the gift or loan. If a parent says “Don’t worry about paying us back” then it will be difficult for a party to argue successfully that this should be treated as a loan. The parties’ intentions and actions at the time of the gift/loan was made will be crucial.

In some cases, the parties who provided the loan can be “joined” as third parties to any Court proceedings. In these matters the family members who provided the money are asking the Court to have their liability repaid directly to them prior to the overall distribution of the other relationship assets. At Carew Counsel our experienced Family Lawyers have acted for many clients as third parties.

If the money is not deemed a loan by the Court it can still be deemed a gift. In these circumstances the Court will treat the gift as a contribution on the part of the spouse on whose behalf it was made. Depending on the size of the financial contribution and when during the relationship it was made, it can have an impact on the overall property division.

So, if you are thinking of providing a loan/gift to your adult children it will be important to obtain advice both at the time this is made as well as upon the breakdown of a relationship to ensure that all parties are protected. With property planning and relevant documentation, parties can often avoid lengthy and costly litigation down the track.

At Carew Counsel, our team of Family Lawyers and Estate Planners have the experience and knowledge to provide you with both expert advice in relation to the above Family law issues and help guide you through the process.

Reviewed Date: 13 Sept 2016

Comments

  • Carew Counsel

    Great Read!

    • Siobhan Lane

      🙂