Parents Loans and Property Disputes
Often a parent of a spouse lends provides money to a couple for a house purchase. Sometimes money is provided when times are tough financially. At separation it makes a great deal of difference if the money provided is a gift or a loan.
Consider this example:
The Husband’s parents provide $250,000 for the couple’s first home. The husband works for 15 years and the wife works for 5 years and mostly raises 2 children. They earn $2,000,000, they live and spend and at the end of the marriage there is a house worth $1,000,000 and a mortgage of $500,000. Let’s just say it is a 60/40 split to the wife for various reasons. Now, let’s compare a loan to a gift.
Loan result: Parents $250,000, Husband $100,000, Wife $150,000
Gift result: Parents $nil, Husband $200,000, Wife $300,000
This example is simplified but close to real situations. Obviously, the wife says it is a gift, the husband and parents say it is a loan. Sometimes it is a gift. Sometimes it is a loan that is also described as a gift if the parties stay married. Sometimes a loan that was forgiven. We look for circumstances to suit your best case and consider the following facts:
- Proof the money was provided;
- How was it provided (lump sum or small irregular instalments);
- Is the deal in writing? If so, how formal?
- Was an interest rate set, 0% or what?
- Were repayments made?
- Was the deal verbal and is it accepted as a loan or a gift?
- Did other siblings receive gifts, or loans?
- Could the parents sue the couple if they weren’t separating?
- Did the parents claim to be generous for a gift, or for interest free and easy finance?
- Did the other spouse know?
- Is there action by the parties consistent with a loan or a gift?
It can even be more complicated if a parent claims an ownership in the asset beyond a mere loan or if they remain on title to land or named owner of a business.
We have seen all the arguments and tricks tried and sometimes succeed and sometimes fail.
We keep a lookout for our client’s as to all the possibilities, pitfalls and what a court is likely to decide.