Monday, May 21, 2012

Family court case on the distinction between a loan and a gift

We are increasingly seeing advisers and clients alike, focussing (very deliberately) on the way in which they advance monies to their children to assist with, for example, the purchase of a family home.

Today’s post looks at a recent case, which was decided last year, and provides a useful example of the distinction between gifting and lending monies from a family law perspective, particularly in the event of a relationship breakdown.

The case of Pelly & Nolan [2011] involved a situation where the husband’s father advanced approximately $520,000 to ‘help his son out’. The initial advance was $320,000 to assist the son and his young family purchase a property. Additional advances were also made to assist with general living expenses totalling approximately $200,000.

The evidence in the case suggested that the father sought repayment for only the $320,000 advanced relating to the property acquisition and not the monies advanced for general living expenses.

As the initial advance was facilitated by a loan agreement and for the purpose of assisting with the property purchase, the court held that such advance was enforceable, even though no interest on the loan had been demanded nor paid.

In relation to the additional $200,000 advanced, there was no evidence to suggest that a repayment would be enforced by the father.

In the circumstances therefore, the court held that the $320,000 advance was indeed a loan and thus a liability that needed to be deducted from the matrimonial assets; whereas the $200,000 advance would be included as property for distribution to the wife (although the fact that it had been contributed by the husband’s father would be taken into account).

A link to the full decision is as follows –[2011]%20FMCAfam530.rtf

Until next week.