Gifts/Loans During Relationship

Issues often arise as to how gifts or loans made to the parties during a relationship are to be treated on separation.

It is quite common for parents to advance funds to the parties to assist them during the relationship. Often the advance is made without documentation and although there may be some expectation that the monies may be repaid, if needed at some stage, it is often unclear as to whether the advance is intended as a loan or as a gift to the parties or one of them.

Even in circumstances where there is some form of written agreement, often there is no provision for interest to be paid and no immediate expectation for repayment on the part of the lender.

While the nature of the advance may not be clear at the time, it is common that on separation the parties have very definite views regarding the advance, with one contending it was a gift to the parties and the other claiming it to be a loan.

The Court has a discretion as to how it will treat the advance and often how to exercise this discretion is very difficult.

The Court might look for written evidence or look at what discussions took place at the time of the advance and whether any part of the monies has been repaid or any interest paid.

Even if there is something in writing, that might not be the end of it, as the court may look at how long ago the advance was made and what, if any, repayments have been made.

If the Court considers it is a loan, it still has to look at whether in all the circumstances it is likely to be enforced and this may involve some consideration of the circumstances of the parties who advanced it.

Ultimately it is a matter of the Court weighing up all of the evidence and assessing where the balance lies.

It is not necessary for the lender to intervene in the proceedings between the parties.

Each case is different and the issue of whether an advance is ultimately regarded as a gift or a loan is one for the Court to determine in the particular circumstances of the case.

The Courts have held that in some cases it is appropriate not to take the liability into account or to discount it. This could include a liability that is vague or uncertain or unlikely to be enforced or which was unreasonably incurred or deliberately incurred in disregard of the other party’s entitlement to property settlement.

Family Law however does not operate in a vacuum and the legitimate interests of third parties are not ignored when the court determines the respective rights to property between the parties.

If an advance is not treated as a loan, then it can be regarded as a contribution by one party but this is not a mathematical exercise and will be just another factor to be taken into account in negotiations between the parties or in the exercise of the Court’s discretion, if a Court determination is required.

The surest way to protect an advance is to enter into a written agreement and to register a mortgage but even this may not provide an answer as ultimately the determination of the nature or character of any advance made is a matter for the Court.

The position in relation to gifts is that the party on whose behalf or to whom the gift is made is usually given credit for a greater contribution because of that gift.

However, whilst the advance may be seen as a contribution by one party, parties and indeed the Court often adopt a broad brush approach to contributions and the advance or gift may be submerged by other factors.

The critical area of contention is in determining the intention of the donor.

Mike Emerson,
Co-principal Brisbane Mediations