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Parents, is it Loan or Gift? It Matters!

Planning on loaning money to your child and their partner? Be sure that you have evidence that it is a loan and not a gift – there are some sticky situations where a contract can come in handy!

Parents, is it Loan or Gift? It Matters!

When a couple separate, it is common for one of the parties to claim that money provided by their parents is a loan to be repaid from the couple’s asset pool. Meanwhile, the other party claims that the money was a gift, not a loan, in order to increase the share that they receive.

These competing interests often lead to hard fought contests that are sometimes decided by a Court, at considerable cost to each party. 

Courts tend to take the view that a parent who ‘lends’ money to an adult child has no intention for the money to be repaid, unless there is clear evidence that the money was to be repaid.

For example, clear evidence that a loan is to be repaid can be a loan agreement or even a mortgage that is registered over property.

The moral of the story is that if a parent wants to safeguard any money loaned to a child, a formal loan agreement should be entered at the time that the ‘loan’ is provided. It may be too late to do that after your child and their partner have separated.

If you have any questions or require advice on drafting a loan contract, contact our Family team on 3345 4388 or at family@hatzis.com.au today.

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