It is quite common for parents to help their children purchase their first home prior to or during their marriage or de facto relationship. In the event that the relationship breaks down, however, the issue of what happens with the money that was given by a parent can become central to the Family Law dispute.
It is a well-established principle in law that money advanced by a parent to a child is regarded as a “gift” rather than a “loan”, unless there is documentation in place to show otherwise. The effect of this on your property settlement is that the money generally cannot be excluded from the property pool.
So how does the Family Court treat gifts?
In Family Law, a substantial part of the property settlement involves assessing both party’s contributions to the relationship. Such contributions may be made directly or indirectly by either party. The general rule of thumb is that a gift given by a parent to a child will be considered as a financial contribution made indirectly to the relationship by that party, which will often increase their percentage entitlement of the property pool.
But remember that there are a number of other factors which will effect your property settlement and every case is different.
How can I ensure that my parents gifts are protected?
There are a few ways that you can ensure that your gifts are protected. One way is to record the gift as a loan, by drawing up a Loan Agreement. The Court will generally not include it as a part of the divisible asset pool, but rather as funds which will need to be repaid. Alternatively, you may draw up a Binding Financial Agreement, which acknowledges that the gift does not form part of the divisible asset pool in the event of a relationship breakdown, and rather belongs to one party only.
Gifts can often become quite complex in property settlements, and in these situations it is always important to seek specific legal advice from a Family Lawyer.
If you require more information on the above article contact Nevine Yousef on (02) 4626 5077 or nyoussef@marsdens.net.au
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.
