A common issue that arises in family law property cases is how a loan from a family member to a party in a relationship ought to be treated and characterised for the purposes of family law proceedings.
In the recent case of Nilssen & Meng [2023] FedCFamC2F 282, this issue arose in relation to a loan from a mother to her daughter in the amount of $200,000 for the purposes of supporting her studies and living expenses.
Background
Nilssen & Meng is a case involving a de facto relationship between Mr Nilssen and Ms Meng.
Relevantly, Ms Meng grew up in China and came to Australia in 2005 to study. To fund her study and living expenses, Ms Meng obtained a loan from her mother in the amount of $200,000. As a result, Ms Meng obtained a health care degree and commenced employment as a health care worker.
When Mr Nilssen and Ms Meng met in 2010, the loan owing by Ms Meng to her mother had not yet been repaid.
Ms Meng’s position was that the funds ought to be characterised as an enforceable and repayable loan and it should therefore be included in the asset pool as a liability.
Mr Nilssen accepted that there was a loan, however, contended that the funds that Ms Meng received from her mother was not a loan but rather a gift by her mother with no expectation of it needing to be repaid.
Enforceable loan, negative contribution or a gift?
The first question that the Court needed to determine was whether the loan to Ms Meng did in fact need to be repaid by Ms Meng to her mother. The Court concluded that the loan was repayable and that there was an expectation by Ms Meng’s mother for it to be repaid when having regard to the following circumstances:
1. There was a Personal Loan Agreement dated 13 April 2020 between Ms Meng and her mother;
2. There was performance by Ms Meng of the Personal Loan Agreement in that:
(a) Ms Meng used the funds to meet her living expenses whilst living in Australia, being the purpose of the monies being loaned between 2004 and 2010;
(b) Ms Meng made sporadic piecemeal loan repayments to her mother throughout the years, despite the Personal Loan Agreement stating that the loan amount is to be repaid between 2004 and 2022; and
3. Evidence was given by the mother that she was expecting for the loan to be repaid in full but had provided her daughter some leniency by way of support.
Can we be sure that the loan will be enforced by the mother?
Even though it was accepted by the Court that a loan existed as between Ms Meng and her mother, there was great uncertainty as to when the loan would be, or needed to be, repaid in full. Neither was there any evidence as to Ms Meng’s mother attempting to recover such debt following 2022, being past the period by which the loan was due to be paid in full. Consequently, the culmination of these factors created great uncertainty as to when it is expected that Ms Meng will actually have to repay the debt.
There was also uncertainty as to the quantum of the debt that was to be included as a liability due to there being no exploration by either Mr Nilsen or Ms Meng of the amount of the liability to be included in the asset pool.
Given the many uncertainties and lack of evidence as to the quantum of the liability, the Court did not include it as being a liability and, rather, dealt with the loan under section 90SF(3)(r) of the Family Law Act 1975 as being a factor to be taken into consideration when making a percentage adjustment.
It was concluded by the Court that the funds enabled Ms Meng to live and study in Australia and secure employment leading to her making significant financial contributions to the relationship. As a result, Mr Nilssen has benefitted from the income obtained from Ms Meng’s skill and training. A percentage adjustment of 5% was therefore made by the Court in favour of Ms Meng given the significant debt that she had to repay to her mother.
Liability vs. Adjustment
In practical terms, had the loan been included loan as a liability in the asset pool, then the net non-superannuation asset pool would have been $352,220. Putting aside there being any adjustment in favour of either person, in order to achieve a percentage division of 51/49 in favour of Ms Meng (being the percentage division indicated by the Court before any adjustment), there would have been a cash payment of approximately $72,000 needed to be paid by Mr Nilssen to Ms Meng.
In the case here where it was not included by the Court as a liability in the asset pool, the net non-superannuation asset pool was $548,720. The percentage adjustment in favour of Ms Meng, although resulted in a 56/44 division in her favour of the net non-superannuation asset pool, led to a cash payment of about $3,000 by Mr Nilssen to Ms Meng to give effect to this division.
Accordingly, there is a stark difference of the cash amount to be received by Ms Meng from Mr Nilssen.
Conclusion
This case highlights the importance and impact that loans from family members have in family law proceedings. It is therefore imperative that you obtain advice from a family lawyer as to how a loan in your family law matter should be treated to ensure that you receive the best possible outcome.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
