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In family law matters, identifying the asset pool is an essential early step in property negotiations.  This involves correctly ascertaining all the assets and liabilities of the parties, which can include loans made to or borrowed from family members.

For example, if one spouse’s parents provided newlyweds with a sum of money to use as a deposit to purchase their first home, was the money a gift or a loan?  If a spouse paid out one of their sibling’s debts, was the payment a loan or a gift?

This article will consider some of the factors which will need to be assessed to correctly identify the impact these sorts of gifts or loans will have on the net asset pool.

Monies received from family members

Parents, aunts and uncles, more successful siblings, or other better-off family members often help each other out in good and bad times.  Parties in family law disputes often disagree about the nature of monies received from one of their respective family members.  When a spousal relationship breaks down, the parties may then disagree about whether any monies that have not been repaid constitute a liability for the purposes of the property settlement.  Vague or uncertain liabilities may not be taken into account, and if a supposed debt is unreasonable or is not likely to be enforced this will impact whether the Court considers it a valid liability.

Factors such as the amount received, how the money was used, and the views of all parties, including the family members who provided the funds, will be considered in order to determine whether a liability exists for the purposes of the property settlement.  If any documentation exists that describes the nature of the payment this will be highly relevant.  The usual indicators of a loan are that:

  • interest is payable;
  • repayments are required; and
  • there is a time limit on repayment.

If the family member is unlikely to enforce repayment of the monies, then it is less likely to have been a loan and more likely to have been a gift, to one or both spouses.

If one spouse can show that monies received during the course of the relationship were a gift to that spouse only, the monies will be considered a contribution that may warrant an adjustment in the recipient spouse’s favour in the course of the property settlement.  This is usually how gifts by parents to their children during the course of their child’s relationship are treated.

Monies paid to family members

Similarly, monies paid to family members are more likely to be considered loans rather than gifts if there is certainty as to the amount, terms, and repayment requirements.  Whether interest is being charged is a very important consideration, as interest is recognised as a key element of a loan.  If monies were paid to family members in association with a special occasion such as a wedding or birth, then they are more likely to have been paid as gifts.  The absence of documentation or agreed repayment terms will, again, make it more likely that the money was given as a gift, rather than as a loan.

When a property settlement is reached in family law proceedings, it is intended to fully and finally resolve all financial matters between the parties.  Therefore, if the money is shown to be a loan to a family member, resolution of the liability should be addressed in the course of the property settlement.

Lynn and Brown Lawyers encourage anyone negotiating a property settlement with a former spouse to get in touch with one of our experienced family lawyers. You can contact us through our website www.lynnandbrown.com.au or by calling 08 9375 3411.

About the Author: Alison is a career-change lawyer who completed her Bachelor of Laws in 2022 and was admitted to practice in August 2023. Alison joined the Family Law team immediately after her admission.

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