Protecting Everyone’s Money
In a property settlement in family law, money from parents, family loans, gifts, trusts and family businesses can all affect how the property pool is identified and divided after separation. When a couple separates, the Court may need to consider whether money was a genuine loan, a gift, a financial contribution, a liability, or part of a family trust arrangement.
Sometimes in Family Law in Australia, it can seem like everyone wants to get a piece of the cake. Trusts, loans, gifts. The list goes on.
When couples separate, in the midst of the emotional stress of separation and often, managing children’s resentment of losing their settled family unit, they have to sort out who owns what and who will get what in the future.
Suddenly, your ex-partner’s Grandpa wants back the money he “gave” you both to help buy your first home.
Then the family business is a trust that your ex-partner claims you control. This is even though your grandfather established the family business last century and you had nothing to do with it.
The Australian Family Law is very strict and has comprehensive rules about disclosure of all assets and liabilities. This is so the Courts can make a “just and equitable”, a fair, division of the property pool. See full and frank financial disclosure obligations.
In Australian family law, financial assistance from family in whatever form: loans, gifts, or trusts, has a significant impact on property settlement and how the assets are divided after separation. It is really important to have formal, independently witnessed documentation.
Without that documentation witnessing that Mum and Dad’s loan was in a specific amount, payable in regular amounts due on particular dates, the courts will, on the most part, presume that the funds from parents for their children to get their first home, were gifts. This is important as a loan that needs to be paid back can go in the list of liabilities, but a gift becomes part of the property pool of the couple to be divided.
Navigating the “gift versus loan” landscape requires knowledge of and a strict adherence to the legal principles that will guide the Court.
Loans or Gifts in a Property Settlement?
What is a Family Loan?
In Australian Family Law if one party is claiming that an amount that was provided to the couple is a loan, that party has to prove that a loan exists.
A genuine loan, even if a private loan between family members, should follow the same principles as a bank loan: a legally binding document with the amount lent, the interest if any due, the repayment schedule and a history of those payments actually being made.
If this evidence and documentation is not available, then the money will be treated as a gift.
Presumption of Advancement
In terms of the Australian common law, any asset, whether property or money, which a parent transfers to a child, will be considered a gift under the doctrine of the “presumption of advancement.”
Gifts as a Financial Contribution
A gift will be considered an asset of the parties which will become part of the property pool to be divided at settlement.
If the gift is to one party, the gift will be considered a financial contribution by that party. As the respective contributions of the parties is a significant determinant of what the Courts look at when deciding what is a just and equitable division of the assets and can carry considerable weight in the balance sheet in favour of the contributing party.
Family Trusts and the Property Pool
Generations have used discretionary family trust both for the tax advantages these offer and also for asset protection to keep property within the family.
Recent tax changes aside, in the Family Law context, the family trust can become part of the property pool. This may be when one party is in control of the trust when the Court may include the trust assets as part of the property pool to be divided at settlement.
Case law is very specific about the circumstances when a trust will be included as a contribution of one of the parties. If, for example, the trust was set up by the grandfather of the contributing party, and is a family business of long standing, the control of the particular spouse may be limited to advancing the business and not for the benefit of the separating family.
Each case is decided on its own facts, so it is extremely important that you contact a knowledgeable and skilful Family Lawyer. We have vast experience in this area and have helped clients navigate the often, complex family arrangements that exist within family trusts.
If you are facing such a situation and feel confused by all the material and legal and corporate definitions and “legalese”, please contact us urgently so that we can immediately set in train the process of disclosure and keep your property settlement on track.
It is important to look at who actually owns the assets, who the beneficiaries are and what value the beneficiaries may have in the trust.
Protecting Family Assets in a Property Settlement
If there are significant assets within the family, a Financial Agreement may offer a solution so that how the property will be divided in the event of separation, can be legally set out. There are pitfalls and a change of circumstances such as the birth of a child can render the agreement void.
It is essential that both parties seek legal advice before considering and/or entering into such an arrangement.
A simple but effective method of quarantining money lent from one party’s family is to formally document the loan and execute a deed with all the required information including the repayment schedule, interest rates, and evidence that the loan is being repaid in these specific amounts.
Have a look at our article on Consent Orders and Property Proceedings.
Dealing with the emotions of separation is difficult enough. Trying to work out how to move forward and understand how the property will be divided after separation can be complicated and exhausting.
We are here to help.
Please contact us on either our office or mobile number or email and we can help you get started, clarify what is confusing and get the division of property formalised for you. Contact our family law property settlement team today to discuss your situation confidentially.
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This article is for information only and should not be relied on for legal advice.
