Family lawyer Jeremy Sutton, in the first of a regular series, helps warring couples navigate the financial pitfalls of a relationship break-up.
Q: Years ago, my wife's parents gave us $300k so we could afford a deposit on our first home and we were hugely grateful.
They said we would inherit the money anyway, so we may as well have it now when we really need it. Now my wife wants to separate from me and they are saying this amount was just a loan that needs to be repaid when we sell the house. What are my rights and what happens now?
A: These types of disputes are becoming more common as property prices rise faster than income, and parents are stepping in to help their children get a foot on the property ladder.
If there is no legal agreement in place, proving that the money was a gift can be difficult.
In terms of what happens next, I would say that your wife would likely prevent the sale of your home until you reach agreement on who the sale proceeds belong to.
You could try negotiating with your wife and in-laws directly but if you're unable to reach any agreement (with or without professional help) then your case would progress to a court hearing, probably in the family court.
In the family court, your case will be heard by a judge over one or more days, who will make a decision as to who the money belongs to. The process takes more than 12 months to complete.
In deciding the case, it is your parents-in-law's intentions at the time that are important, rather than you and your wife's understanding of whether the amount was a gift or a loan.
To make a decision on what your parents-in-law's intentions were, the court will consider a wide range of evidence, including written and spoken communication between you, your wife and parents-in-law, and any relevant documents and communication with third parties. They will consider whether the evidence presented by each of the parties is credible and can be relied upon.
Other general principles considered by the courts in settling these cases are:
• The party claiming the advanced money was a loan will have the onus to establish there was no intention to create a gift.
• If a gift was made prior to October 2011, it would have attracted gift duty. Was gift duty paid?
• Whether there has been a pattern of gifting or lending between the parties, eg have there been a series of amounts lent which have always been repaid?
• The financial position of the parties, eg it might be considered unlikely for a parent nearing retirement age to gift a large percentage of their retirement savings.
• Where very large sums are advanced, the court is generally reluctant to class them as a gift.
A family court hearing can result in substantial legal costs for both parties as the case requires a lot of preparation, in addition to days spent at the court hearing.
If the amount is determined to be a loan, then you may be liable to pay a portion of your in-laws' legal costs.
The court process can be very stressful, both being in court and also that the matter takes so long to resolve.
During this time, it can be difficult for people to move on with their lives. For these reasons I recommend people reach a compromise without going to court, if possible.
I would start by documenting the conversations you remember and collecting emails or anything else that might be relevant. Then I recommend you meet with a lawyer to discuss your case. Best of luck to you.
Where families help each other out financially, it is helpful to in the long run if they document whether the amount is a gift or a loan.
Loan documentation should include the terms of the loan, including interest rates and timing of interest payments and principle repayments.
For an agreement to be legally binding, each party should receive independent legal advice and sign the document in front of appropriate witnesses.
- Jeremy Sutton is a senior family lawyer, specialising in divorce cases where there are significant assets including family trusts and complex business structures.