Helping your kids financially – what if they divorce?
It is very common for adult children to rely on the “bank of mum and dad” when purchasing property, investing in businesses or getting them out of a sticky financial situation. Grandparents are often also relied on heavily to care for grandchildren, providing free child care for their own children.
What if they divorce?
That can all add up to a lot. So if a couple is going through a separation, and have received a benefit from financial and non-financial contributions from a parent, how is this treated in the property settlement?
A property settlement does not run to a set formula- there is certainly no automatic “50/50 division”. In very simple terms, the first step is to work out the total value of the property, and secondly, to determine the percentage that it should be divided by considering each spouse’s contributions.
How is financial support treated?
The treatment of financial support may depend on the context of the support, whether it was considered a loan or gift, and whether it was intended to benefit both parties, or just the related party.
If the funds were provided as a loan, that will impact the first step of the process as it will generally be included in the asset pool for distribution, and will reduce the available property. Depending on the amount of the ‘loan’, this may significantly impact the property pool.
If alleging that a loan exists, it is important to have the best evidence and that means a documented loan that has been actively repaid. Usually what the court would look for is formality of the agreement, including supporting loan documentation, whether there was a repayment plan in place, demands for repayment and interest charged on the loan.
Sadly, many “family loans” are done informally and don’t have this level of documented detail. That is not necessarily fatal, but it makes the “loan” claim a lot more difficult.
If the payment made is a gift, it will be treated as a contribution by the party given the gift, and it will be taken into account in the second step of the process, when determining the percentage split. This means it is not considered as a dollar amount and won’t receive the full credit amount, as if it was a loan. It is important to note, however, that the weighting of any gift will depend on the particular circumstances of each case, including the size of the gift, how those funds were used, the overall property pool and other contributions factors.
Non-financial contributions, such as babysitting, may also be considered as a contribution factor, and again will be considered in the context of the relationship as a whole.
The court recently considered a case where a husband received a significant gift from his parents, however when the court looked at the intention of his parents when providing the gift, they came to the conclusion the gift was for the benefit of both parties. The specific facts which pointed to that conclusion included the fact that the property was transferred into joint names, and put an obligation on both the husband and wife that they would support the parents if needed as they grew older.
This case shows that there is no “general rule” in family law matters, and it is important to obtain advice for your specific situation.
Need family law advice?
To receive family law advice on “family loans” or other family law topic from one of our family lawyers, please contact Michael Lynch Family Lawyers on (07) 3221 4300 or fill out the online form to book an initial fixed-fee consultation.