Loans to adult children can cause headaches and heartaches if that child’s marriage breaks down and, as often occurs, there is a subsequent argument as to whether the money advanced by you was a gift [and therefore not repayable] rather than a loan as you had intended.
Some parents try to gain peace of mind and secure their monies by entering into an unregistered mortgage with their son or daughter, but this is rarely successful in Family Court proceedings; less so if the mortgage is payable “on demand”.
In deciding whether money advanced is a gift or loan, the Family Court determines whether the advance has more indicators of a gift or more indicators of a loan, e.g. If there has been an advance of money, with no specific documentation setting out the terms and conditions of the loan, and no repayments in compliance with the agreement or no repayments at all, it is likely that the Court will determine that the advance was a gift.
If you have advanced money, or intend to advance money, to your daughter/son who is about to get married, you should make such loan conditional upon your daughter/son and her/his fiancée entering into a Financial Agreement (pursuant to Section VIIIA of the Family Law Act), so that the money advanced is an asset of your daughter/son not an asset available for division by the Family Court.
If the purpose of the advance is to purchase a property, then the property or that part represented by the advance, should be the subject of such an agreement.
Any property, the subject of a valid Financial Agreement, is outside the jurisdiction of the Family Court and the Court cannot make Orders about the advance or the property purchased.
If real property is to be transferred to benefit a child it can also be treated in the same way.
If your daughter/son has already married and not yet divorced, a Financial Agreement could still be entered into, to protect that advance.
NEIL JAMIESON
Principal
Accredited Specialist Family Law
