How Are Gifts and Loans Treated in Property Settlement in QLD?
When a couple separates, whether it be a divorce or the breakdown of a de facto relationship, an important part of the separation process is determining how property and assets will be divided between the couple moving forward.
In Australia, it is common for parents to loan or gift their children significant sums of money, which is often put towards purchasing properties or cars. Complexities can arise in cases where a couple, or one member of the couple, were gifted or loaned money by a parent which subsequently needs to be categorised (during a property settlement). This is particularly common when there is a lack of clear evidence as to the intention of the family member at the time the money was provided.
As such, it is important to understand how loans and gifts are treated during property settlements in QLD, and what determines whether a payment is counted as a loan or a gift.
How Do Gifts and Loans Affect a Property Settlement in QLD?
When a couple is separating, they typically make an arrangement which outlines how assets, liabilities and financial resources will be split between the couple. This can be done with or without the assistance of the Family Court.
This process necessarily entails evaluation of the couple’s ‘property pool’ to be divided, which can include items of value such as:
- Property (whether owned independently or jointly)
- Cars
- Superannuation
- Business interests
- Jewellery
- Animals
- Inherited assets
There is no set approach that the court takes when determining division of property during a property settlement in QLD, and the asset split is assessed on a case-by-case basis. However, one of the main factors considered by courts is who contributed what to the property pool.
So, Where Does Gifted or Loaned Money Fit into this Evaluation?
In Family Court proceedings dealing with a property settlement, money which is considered to have been a gift to one member of the separating couple is viewed as a contribution to the property pool on behalf of the person who received the money. This means that it can be included as part of the property pool, and therefore divided between the separating partners as the Court sees fit. Depending on the amount of money, how it was used by the parties, the length of the relationship and other contributions which may have been made, that party may receive a larger share of the asset pool to account for their greater contributions. However, this may not always be the case.
Notably, if the gift was clearly intended for one party of the couple, the Court views the gift as a contribution from that individual. If the intention at the time of gifting was that the money was for both people in the relationship, the gift will be taken as an equal contribution to the property pool.
In addition, if the gift was received prior to the commencement of the relationship, it is typically categorised as an initial contribution from the original gift recipient.
If a payment received by the couple or one of the parties is instead considered to have been a loan, it is not included in the property pool to be divided. Instead, it is typically treated as joint liability, which must be repaid from the property pool to the lender before the rest of the assets are divided.
This means that categorising a received payment as a loan as opposed to a gift during the course of a property settlement can greatly benefit one party.
A typical case in which disputes over the categorisation of a payment as a gift or a loan occurs when a parent makes a significant payment to a child, and the child then separates from their partner. The partner may claim that the money was a gift, and should therefore be included in the property pool to be divided, while the person who received the money (or the parent who provided it) may claim that the payment was a loan and should be repaid to them out of the property pool.
The question then becomes: what is the criteria used by the Court to determine whether a payment was in fact a loan?
What Determines Whether a Past Payment is Considered a Gift or a Loan?
The key differentiator between gifted or loaned money is that gifted money was not expected to be paid back at the time of gifting, whereas loaned money was.
This means that when determining whether a payment was a gift or a loan, the court will consider the intentions of the giver. Evidence which the court considers when deciding if a payment was in fact a loan include:
- The loan itself having been recorded in writing
- Recording of the terms of repayment for the loan
- Whether there is a finite loan period or dates for expected repayment
- Whether any payments by the borrower have actually been made
- The capacity of the receiving party to repay the loan
For this reason, it is important for an individual loaning money to create a formal agreement at the time of lending, including details such as the amount borrowed, any payable interest and the terms of repayment. This could save an immense amount of hassle and legal fees down the line, if a dispute concerning the payment arises during a property settlement in QLD.
If the Court finds that there is a lack of sufficient evidence suggesting the payment was a loan, they will categorise the payment as a gift.
This is what happened in Family Law case Rowntree v FCT [2018] FCA 182. In this case, Rowntree (the parent who was the loanee to his child and soon-to-be ex) claimed while there was no legally prepared loan agreement in place, that the loan was inferred, and even kept his own financial records with details of the loan. Unfortunately for Rowntree, the the judge deemed that this was not sufficient evidence, and that only a legally prepared Loan Agreement would truly satisfy the Family Court that a loan existed.
Need Advice on a Property Settlement in QLD?
If you are navigating a property settlement in QLD, or are considering gifting or loaning someone money, our experienced lawyers can help ensure you make an informed decision and avoid running into future pitfalls by protecting your assets. We can also assist with property settlements overseas, LGBT law, spousal maintenance and many more family law issues.
To speak to one of our experienced lawyers today, please get in touch via email, or call us in our Gold Coast office on (07) 5526 3646, or in Brisbane on (07) 3144 1641.