The dilemma of gifts and loans in family law property settlements

Posted on 17 November 2022

Jacqueline Scriven

The dilemma of gift and loans in family law property settlements

Property settlements in family law can be complex and confusing, even more so when ‘gifts’ and ‘inheritances’ are part of the property pool.

During a relationship, it is common for couples to receive financial assistance from parents or other family members, and this is often a source of conflict following separation. A party might argue that the financial contribution was a gift whilst another party might argue that it was a loan that now requires repayment.

The dispute often arises because there was an informal agreement between one of the parties’ parents in relation to the repayment of monies. In some instances, parents might not consider it necessary to formalise the loan; rather there is simply an understanding the money will be repaid. In other situations, the ‘loan’ is formalised and secured by a mortgage but can still be challenged.

Loan v Gift v Inheritance

• If the court finds the money was a loan, it needs to decide whether the loan is legally repayable and is likely to be repaid.
• Loans might be required to be repaid upon separation from the couples’ pool of assets.
• The court is less likely to include the loan if it is vague or uncertain.
• Where the court finds the money was a gift, the money is generally treated as a contribution made on behalf of the party whose parents gifted the money unless there is evidence that it was not the intention of the parents to benefit only their child. This will in turn generally increase that party’s property settlement entitlements.
• There is usually a clear difference between a property that is intended as a gift compared with an inheritance, however, in some instances, a person might receive an ‘early inheritance’. For the purposes of the family law property settlement matter, even though the funds might have been ‘inherited’ in some form or described as such, it is more appropriately considered a ‘gift’.

To determine whether the financial assistance was a loan or gift, the court might look at the following factors:

• the existence of any written loan agreement.
• the terms of repayment.
• whether any loan repayments were made by the parties.
• evidence of any discussions held between the parties as to the existence and terms of the loan.
• evidence as to whether there was any expectation of repayment.
• whether there was any security provided in respect of the loan, such as a registered mortgage.
• how the funds were applied and whether they can still be easily identified.

How courts treat inheritance monies

In Bonnici & Bonnici (1992) FLC 92-272, the court said an inheritance is not a protected category of asset and the way in which an inheritance is treated will depend on the circumstances of the case: if there are ample funds from which an appropriate property settlement can be made and a just result arrived at, then the fact of a recently acquired inheritance would normally be treated as an entitlement of the party in question. The other party cannot be regarded as contributing significantly to an inheritance received very late in the relationship and certainly not after it has been terminated, except in very unusual circumstances.”

In contrast, in Miller & Miller [2014] FamCA 591, the husband received an inheritance three years before the end of a ten-year marriage and the inheritance represented a significant percentage of the overall property pool. The Court found, in this instance, it more appropriate to include the inheritance in the pool of assets however gave the husband an adjustment based on the contribution.

Before deciding whether an inheritance, a gift, or a loan from a family member needs to be considered in a final property settlement, talk to us at Omnia Legal.

Contact Omnia Legal today for your complimentary consultation to discuss your business needs.  

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