Loans vs Gifts in Family Law

When a relationship ends, and it’s time to identify and divide assets and liabilities, a loan from family and how it is dealt with, is an issue that arises frequently in family law property disputes.

The family that have provided funds, in the event of separation, often prefer that the funds are characterised as a loan and therefore are recoverable.

The party that was not the ‘receiver’ of the funds often seeks that the funds contributed are characterised as a gift, and therefore not recoverable.

If you’re intending to loan funds to or from family, the Family Court have considered the issues clearly and provided clear indicators that may enable them to exercise their discretion to identify funds as a loan.

In short, the loan should be in writing, there should be some call for repayment or likelihood of a call for repayment, there should have been some actual repayment of the loan.
A simple loan agreement, even better, registered by way of second mortgage, with a repayment schedule in place (however infrequent) would go a long way to protecting funds provided by family.
Better still a (‘pre-nup’ style) financial agreement, particularly for a second relationship post children giving far greater certainty as to asset division upon separation, is a wise path to tread.

If you need advice on this issue, or related property settlement aspects, please contact (Hobart and Kingston Office) Kristi Foale by email: [email protected] or telephone: (03) 6226 1210 or (Launceston Office) Melinda Torney by email: [email protected] or telephone: (03) 6338 2390.

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