Financial help from parents or relatives is common in Australia, particularly where a couple is buying or renovating a home, starting a business, or managing family expenses. However, when a relationship breaks down, determining whether the money was a gift or loan from family can become highly contentious.

One party may say: “My parents lent us the money. It has to be repaid.”

The other may say: “It was a gift. There was never any expectation of repayment.”

In family law property proceedings, the distinction matters. A genuine loan may reduce the net property pool as a liability. A gift will usually be treated as a financial contribution, often on behalf of the party whose family provided the funds.

Why the Distinction Matters

Property settlement for married couples is dealt with under s 79 of the Family Law Act 1975 (Cth). For de facto couples, the equivalent provisions are found in s 90SM. The Court identifies the parties’ property, liabilities and financial resources, assesses contributions, considers relevant future circumstances, and determines whether the proposed outcome is just and equitable.

If money from family is accepted as a loan, it may be included as a liability and deducted from the asset pool. If it is treated as a gift, it does not reduce the pool. Instead, it may be recognised as a contribution made by or on behalf of one party.

This can materially affect the outcome of a property settlement.

Where parents provide money or property to an adult child, the presumption of advancement may apply. This means the transfer is presumed to be a gift unless there is clear evidence showing it was intended to be a loan at the time it was made. The presumption can be rebutted, but the evidence must be persuasive. Courts are cautious about family loan claims, particularly where the alleged loan was undocumented, no repayments were made, and repayment was only demanded after separation.

What Does the Court Look At?

The Court will examine the surrounding circumstances, not merely the label used by the parties. The key issue is the intention at the time the money was advanced.

Relevant factors include:

• whether there was a written loan agreement;
• when the agreement was prepared;
• whether the loan terms were clear;
• whether interest was payable;
• whether repayments were made;
• whether demands for repayment were made before separation;
• whether the loan was secured by mortgage, caveat or other security;
• how the parties described the money to banks, accountants or government agencies;
• whether the alleged lender is likely to enforce repayment; and
• whether the claim appears to have been raised only because of the family law dispute.

A written agreement can assist, but it is not conclusive. The Court will consider whether the parties actually behaved as if there was a real obligation to repay.

In Liakos & Zervos and Anor [2011] FamCA 547, the husband’s father alleged that substantial advances were loans. The Court rejected aspects of the claim, noting inconsistencies in the evidence and the lack of compliance with or enforcement of the alleged loan terms. The Court was concerned that the claim was being pressed only against the wife’s interests after separation.

Similarly, in Gans & Albert [2013] FMCAfam 300, the husband’s parents claimed that money advanced 17 years earlier was a loan. No attempt had been made to recover the funds during the relationship. The Court regarded the suggestion that repayment would have been demanded absent separation as implausible and treated the advance as a gift.

Family loans can be recognised where the evidence supports a genuine repayment obligation.

In Nilssen & Meng [2023] FedCFamC2F 282, the Court accepted that funds advanced by the respondent’s mother were a genuine loan. There was a personal loan agreement, evidence that funds were used consistently with the purpose of the loan, evidence of repayments, and evidence from the mother that repayment was expected and the debt would not be forgiven.

However, even where a loan exists, the Court may still consider whether it should be included as a liability in the pool, discounted, or dealt with as a factor affecting contributions or future circumstances.

If It Is a Gift, Who Gets Credit for It?

If the money is found to be a gift, the next question is who the gift was intended to benefit.

The usual approach is that a contribution by a parent is treated as a contribution made on behalf of their own child, unless the evidence shows the parent intended to benefit both parties.

In Kessey & Kessey [1994] FamCA 162, the Full Court stated that a parental contribution to matrimonial property will generally be treated as a contribution by or on behalf of the child of that parent, unless there is evidence establishing a different intention.

The Court may consider:

• whose parents provided the money;
• what was said at the time;
• whose account received the funds;
• whether the funds were placed into joint names;
• what the money was used for;
• whether the donor intended to benefit the couple or only their child; and
• the broader circumstances of the relationship.

A parental gift used as a deposit, mortgage reduction, renovation fund or business contribution can still be significant, even if the money no longer exists in its original form.

Financial Support as a Financial Resource

In some cases, ongoing family assistance may be relevant as a financial resource rather than a gift or loan.

The High Court in Hall v Hall [2016] HCA 23 described a financial resource as a source of financial support that a party can reasonably expect will be available to meet a financial need or deficiency.

This may be relevant where a party regularly receives substantial parental support, and there is a reasonable expectation that support will continue.

Key Takeaways

• A family advance may be treated as a loan, gift, contribution, liability, or financial resource depending on the evidence.
• Parent-to-child transfers are often presumed to be gifts unless clear evidence proves otherwise.
• A written loan agreement helps, but conduct matters.
• The Court will consider whether repayment is genuinely expected and likely to be enforced.
• If the money is a gift, it will commonly be treated as a contribution on behalf of the party whose family provided it.
• Proper documentation at the time of the transaction is critical.

How Shan Lawyers Can Assist

Shan Lawyers assists clients with property settlements involving family loans, parental gifts, disputed liabilities, financial disclosure and contributions.

Where significant family funds are involved, early legal analysis can help determine whether the money is likely to be treated as a gift, a loan, a liability, a contribution, or a financial resource in the family law context.

If money provided by family has become an issue in your property settlement, contact Shan Lawyers for advice about how the circumstances, documentation and available evidence may affect your legal position.

Key Takeaway

Family law litigation is sometimes necessary, but it is not the only option. Many separated couples resolve disputes through FDR, mediation, conciliation, arbitration, Consent Orders or Binding Financial Agreements.

A well-chosen process can reduce conflict, provide certainty and help parties move forward with legally effective arrangements.

Shan Lawyers assists clients across Melbourne and Victoria in understanding their family law dispute resolution options and identifying an appropriate pathway for their circumstances. If you are unsure which approach may suit your matter, contact our family law team for practical advice about the options available. 

About the Author

Thirumalai Selvi Shanmugam is the founder, Director, and Principal lawyer at Shan Lawyers and is a leading family law specialist in Australia whose expertise is often sought by organisations and the media.

Disclaimer

This article provides general information only and does not constitute legal advice. Family law matters are fact-specific, and the options available will depend on the circumstances of each case.