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When separating from a spouse the property is divided, but does that include contributions from your parents, should your former partner benefit from that gift?

It is not unusual for parents to financially assist their child to give them a head start in life. This may look like a sum of money, land, or even a property! The gift can be an enormous head start to their child.

Often this type of generosity is informal and undocumented. Most parents do not anticipate the breakdown their child’s relationship and do not consider the affect a separation may have on the property gifted to their child.

What happens to a parent’s contribution?

When the relationship breaks down, there must be consideration of how the contribution would be dealt with in a property settlement.

The Court may treat the contribution in two separate ways:

• Firstly, the Court may view the contribution as a loan that is to be repaid to the parents; or
• Alternatively, the Court could consider that the contribution was made by the parents without the expectation of repayment.

It must be noted that the other side will often assert that the contribution is a gift. In doing so, the contribution will form part of the asset pool.

How do you establish the contribution is a loan?

You will need to consider if there were any written or oral terms agreed upon regarding the contribution. It may be a loan agreement if there is record of loan repayments, or if there is security taken for the loan.

The Court may find a contribution to be a loan in circumstances that there is a formal loan document.

However, in circumstances where there is little evidence to establish that the contribution was a loan, and no repayments had been previously made, it will be challenging to satisfy the Court that the contribution was a loan and it will likely be considered as a gift.

We recognise that it can be confusing to determine if a contribution from your parents is a loan or a gift. Please call us to make an appointment, Elena and the team look forward to helping you resolve your dispute.

Separation requires the division of property between the parties.

Why? Because if you do not legally formalise your agreement, you run the risk that one party may change their mind. This can be expensive.

There are two options to settle property matters: a Financial Agreement or Consent Orders. Both documents are a formal agreement regarding the division of your property, but are drafted and enforced in different ways.

Financial Agreements

A Financial Agreement is a private agreement between parties, so it is not subject to the Court’s review. However, Financial Agreements can be more complex and expensive to prepare.

A Financial Agreement includes background information about the relationship, identification of the assets and itemisation of what each party shall retain.

This agreement does not need to satisfy the ‘Just and Equitable’ test, therefore there is risk that the agreement may benefit one party more than the other. As a result, there is a larger risk that the document may be challenged by a party later if they decide to no longer be bound by it.

As there is a risk the Financial Agreement may not be just and equitable for both parties, each must obtain independent legal advice regarding the document. A Solicitor must sign a certificate that they have given the required advice.

Consent Orders

Unlike Financial Agreements, Consent Orders are filed with the Family Court. Consent Orders require two documents, those being an application for consent orders and a minute of order.

Consent orders form a written agreement that identifies both parties, liabilities, superannuation entitlements and contributions that were made to the relationship. The proposed orders will outline the orders you wish the Court to make regarding the division of property between the parties.

The Court must be satisfied that the proposed orders are just and equitable to both parties before they are approved. Once the orders are approved by the Court they are binding on both parties and cannot be amended.

It is important to note that parties must file the application for consent orders within a year of their divorce. This period is 2 years for the separation of de facto couples.

Which approach do I choose?

Both options offer advantages and suffer disadvantages. We recommend that you take a moment to consider the current circumstances and your relationship with your former partner to evaluate the best option for you. It is important that you receive proper advice as to which option is most beneficial to you. It is important to get your strategy in place.

Please call us to make an appointment, Elena and the team look forward to helping you resolve your matter.