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.