There is often confusion surrounding loans or gifts of money which are received by a party or parties to a relationship, and if or how these payments may be repaid upon separation.
During the course of a relationship, couples may receive financial assistance from parents, other family members, and close friends. This assistance is useful during the relationship, however, is frequently a source of contention between parties following the breakdown in the relationship. One party may argue that the financial assistance was a gift, and so does not need to be repaid from the assets of the relationship, and the other may argue that it was a loan to be repaid.
Gifts in Family Law are generally considered to not be repaid upon separation. When the court is considering the contributions to the relationship, gifts are treated as contributions by the party whose family or friend provided the gift.
By contrast, loans incurred during a relationship are generally required to be repaid upon separation from the parties’ pool of property.
How does the court determine if the financial assistance was a gift or a loan?
Whether the court views the financial assistance as a gift or a loan will be determined by the evidence produced in relation to the financial assistance. Without the support of a loan agreement, or security it will be unlikely that the court will determine the financial assistance to be a loan to be repaid upon separation.
As such, it is important that if the receiving party hopes for the financial assistance to be considered a loan, that it is formalised by way of a loan agreement with clear terms about how the loan is to be regularly repaid.