With the property market becoming increasingly more difficult to break into, more people are relying on their parents to assist with purchasing a new home. However, how is a loan treated from your parents if the property becomes part of the pool for division? Can your parents get their money back? What if a property is purchased for an adult child under their parent’s name? Can this form part of the property dispute?
Unfortunately, if agreement is not reached between the spouses and parents, it usually becomes necessary to join the parents to the family law proceedings as third parties. However, it is important to obtain advice early as to whether this is necessary as joining third parties to proceedings can be costly if it is not done properly.
The reason it becomes necessary to join a party outside of the marriage or de facto relationship to the family law proceedings is because the Family Law Courts are unable to make enforceable orders against third parties.
A common scenario that occurs is where parents acquire property and allow their adult child and family to live in the property as if it is their own. In this example, the partner of the adult child who had the benefit of living in the property may have made contributions to that property such as conducting renovations, rearing children in the property or paying mortgage repayments. Depending on the evidence that can be established as to the intention the parents had when purchasing the property, the property may or may not form part of the pool of assets to be divided between the adult child and their partner. The parents may be joined as third parties to assert that the property remains their property and should be excluded from the pool of assets in their child’s family law dispute.
The Court will perform an assessment of contributions pursuant to section 79 of the Family Law Act 1975 that each party made to the property the subject of the dispute and all parties will be required to give evidence to support their respective positions. As the Family Law Courts are highly discretionary, it is always helpful if there are formal loan agreements and/or Trust Deeds in place prior to the breakdown of a relationship in order to place weight on whether or not a property will form part of family law dispute.
Similarly, if a person obtains a “loan” from a family member, the likelihood that the loan will be a liability the Family Law Courts will take into account in a property division will be greatly assisted with documentary evidence such as a loan agreement and/or regular repayments.
If there is ever a doubt as to whether an asset forms part of a property pool or if there are funds owing to family members, it is important to obtain legal advice early to attempt to resolve these issues without protracted litigation.
