Treatment of Gifts and Loans in Property Settlements
My name is Bruce Provan, I’m the Managing Director of Page Provan, we are a firm of family lawyers who specialise in family and fertility law, we’re located in central Brisbane. I want to talk today about the treatment of gifts and loans as part of a property settlement.
So often clients come to us for assistance in relation to dividing up the property post separation, and there has been a gift or a loan or an inheritance from a family member and we discuss with them how that is likely to be treated, either in negotiations or if the negotiations are not successful, how it’s likely to be treated by a court.
Now, any gift or inheritance is very likely going to be included in the pool of property which is available for distribution between the parties, and that’s even an inheritance which might be received post separation. It still goes into the pool, but it may be because it was received post separation and one person did not make any direct contribution to it, that it’s put into a separate pool and the person who inherited that property keeps all of it.
But otherwise, if there’s an inheritance received at any time during the relationship or even prior to the relationship, we need to consider and advise how it might be treated in the property settlement. If it was received early in the relationship, it could carry considerable weight depending on how it’s applied.
So for example, if the inheritance is applied towards the acquisition of a home and that home increases in value considerably during the relationship, then in the inheritance is going to carry considerable weight. Also an inheritance that’s received late in the relationship, especially if it’s been put into a separate account or somehow set aside from the other assets, that can also carry considerable weight.
Now, gifts and loans are different. Often, what happens during a relationship is that parents or other family members will gift or loan money to either both people or to their relative, which contributes to the pool of matrimonial property which is available for distribution between them.
Now, very often these gift or loans are not documented, so it’s not clear whether there is a gift or a loan, but it is significant. So if there is a loan from the family member, then it’s a liability which must be repaid and the parties need to negotiate how it’s going to be repaid, which person is going to do it, etc. But if it’s a gift, it’s a bit more complicated.
There’s the question of was the gift intended to benefit both of them or just one of them. In most cases, if there’s a gift from a family member, the courts will consider that it was a gift that was intended to benefit their relative or child, and they will treat it as that person’s contribution.
Very often what happens is post separation, that what’s one person considered to be a gift, the other person considers to be a loan, and then there’s the case of working out, look, is the gift or a loan? And there’s the negotiations about, look, was that gift or loan ever documented? Often it wasn’t.
If it was documented, was there ever any real intention that gift or loan would be repaid? Were there repayments made during the relationship? Was there interest charged? And looking at all those factors, we work out whether it was actually intended to be a gift or a loan. But often there’s no definite answer, and if a case proceeds to court, it’s up to the judge to determine whether it’s a gift or a loan.
But it is significant because if there is a gift from a person’s family members, that’s regarded as their contribution mostly, and that affects the percentage distribution of the property. Whereas if it’s a loan, as I said earlier, there needs to be arrangements made for that loan to be repaid.
There’s been some cases where there has been a loan from family members to one of their relatives, a party to the court proceedings, but the court has said, look, even though the loan was documented, there was never any real intention that, that loan would be repaid, or else that the loan was only expected to be repaid at a distant date in the future or repay it over time.
So for us, to assist parties in the property settlement, we go through all of those factors to try to reach an agreement, and ultimately, if we can’t reach an agreement, it’s for the judge to make a decision.
My name is Bruce Provan, I’m the Managing Director of Page Provan Family and Fertility Lawyers and if we can assist you in negotiations for a property settlement, please contact us.