Family, divorce, loans and gifts
The decision of Chaudhary v Chaudhary [2017] NSWCA 222 (‘Chaudhary’) in the New South Wales Court of Appeal has highlighted the issues in lending money to family members. Rising property prices have meant that it is becoming increasingly common for parents to provide financial assistance to their children and their children’s partner, either through transfer of property or giving money, or both. However, there are many issues associated with this, especially in the event that the couple separates. Such an event can quickly deteriorate into a dispute over whether the money or property provided was by way of a gift or a loan.
Loans vs Gifts
The NSW Court of Appeal has emphasised in its seminal decision of Chaudhary that it is the conduct of the parties, rather than their subjective intention, that is relevant. Emmett AJA held that whether an advance of money should be characterised as a loan or a gift is to be ascertained from the objective evidence of what the parties said and did. This question is not to be determined by reference to any uncommunicated subjective state of mind that requires inferences to be drawn. In the Chaudhary case, Emmett AJA held that it was unequivocally clear that the parties intended the advance of money to be a loan, based on the terms of an executed mortgage document and communications between the parties.
The Chaudhary case concerned an advancement of money for the purchase of a house (‘the property’) from a father to his son and his son’s wife. The characterisation of the advancement became an issue when the son and daughter-in-law divorced, and a dispute arose as to whether the sums advanced by the father were repayable to him. The daughter-in-law claimed that the sum advanced by the father was by way of gift and was not repayable. Further, she asserted that because there were present proceedings in the Family Court of Australia, the property was subject to orders under the Family Law Act 1975 (Cth).
The Court of Appeal rejected this argument, finding that the mere fact that two of the parties involved were parties to a marriage and the property involved was matrimonial property does not mean that the NSW Supreme Court and the Court of Appeal did not have jurisdiction to deal with the proceedings. It follows that the existence of proceedings in the Family Court of Australia will not always bar the commencement of proceedings in the Supreme Court for recovery of monies advanced by way of a loan by a parent.
For more information on the risks of lending money to children see our article Gifting or Lending Money to Your Children. Alternatively, contact us if you have any questions or would like some further information about the issues raised in this article.
DISCLAIMER: The information contained in this article is general and is not intended to be advice on any matter. It is for information only and is not legal advice. In the event of a legal problem, you should seek legal advice.
