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
