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Keeping Yourself Covered – Protecting Gifts from Parents

June 12, 2018

Rebecca was struggling – she was facing all the usual challenges of a being a first-time mother to a three months old baby. She was also contemplating separating from Alvin, her de facto partner of five years.  We discussed the all too real pressures that coping with the demands of a baby can place on the relationship between its parents. We explored what, from Rebecca’s perspective, would need to change to prevent a separation and the supports that were available to her and Alvin.

Rebecca was keen to try some of the interventions we came up with that may address her concerns with her relationship and avoid a separation. However – just in case – she also wanted some picture of what may happen in terms of their property should they end up separating.

Last year, she bought the home that she and Alvin live in. Her parents generously gifted her $150,000 towards the purchase (they’d done the same for her older brother). She also used $80,000 of her own savings. She earned more than Alvin so she was also paying more towards the home’s mortgage and expenses.

Rebecca proudly told me she had safeguarded things by ensuring the home was registered in her name alone. She had also borrowed the mortgage in her name alone. Alvin’s payments to her were purely “board” for living in the home. She was feeling happy and confident that she’d set things up so that Alvin had no claim over her home and couldn’t walk away with any of her parents’ gift.

Sometimes as family lawyers we must rain on people’s parade. We can’t always tell clients what they want to hear. This was one of those times.

Despite the fact the home and mortgage were in Rebecca’s sole name, she was dismayed to learn that by law the home was relationship property. The principal family residence is given special status in law as the “family home”. Given their relationship had existed for more than three years, the law provides the home would be divided equally between her and Alvin if they separated.

Rebecca challenged me on this – What about the fact she had contributed more financially to the home and its expenses? This is a common situation where one party earns more than the other in a relationship. Unfortunately for Rebecca, it does not give rise to a legal basis for departing from equal sharing of the family home. The equal division of the family home applies irrespective of how or when the home was acquired.

Rebecca’s savings that she contributed to the purchase of the home were acquired during the relationship so these would be regarded as a contribution of relationship property to the acquisition of the home, even though they came from her income. If they had been squirrelled away by her prior to the relationship, they would be her separate property but once they were contributed to the family home with her consent, they become relationship property as part of the home.

Rebecca was beside herself but felt she had one last hope –  what about her parents’ gift? I questioned her further about the intention behind her parents’ contribution to the purchase of the home. She was very clear it was a gift and that they had gifted a similar amount to her brother when he bought his home some years ago. She indicated there was never any intention of it being repaid to them. There also was no intention that they would have any interest in the home. There was no loan documentation completed. In all the documents provided to the Bank for the mortgage, the monies from her parents were declared to be a gift.

While one view could be that her parents only ever wanted Rebecca to benefit from the gift if her relationship with Alvin broke down, this hasn’t prevented the Court finding in other cases that the family home gets divided equally even when gifts have been used to purchase it.

Understandably, this was not the news Rebecca had expected. She may have grounds for an “extraordinary circumstances” claim to depart from equal sharing given the level of her contributions compared to Alvin’s but such claims are notoriously difficult to successfully mount. Even if she was successful in such a claim, she is likely to incur considerable legal costs, stress and delay in the process. Rebecca felt resigned to her only hope being that Alvin may “do the right thing” and agree to the gift from her parents being treated as her’s alone.

What could Rebecca have done to avoid this? Firstly, when she bought the home she should have been upfront with her conveyancing lawyer about her relationship with Alvin and that he would be living with her. Taking advice, and acting on that advice, at the time the home was purchased would have prevented her being left in this predicament. She could have:

(a) put the home in a family trust and coupled this with a Contracting Out Agreement to set out that any interests or property rights she may have in the trust are her separate property. This may be more than needed for Rebecca’s circumstances and having a Trust comes with ongoing costs and administration;  or

(b) entered into a Contracting Out Agreement with Alvin to preserve the gift as her separate property and to set out how the home was to be treated if they separated; or

(c) had her parents own a share in the home proportionate to their contribution to its purchase. If she had done this, it would have been prudent to enter into a Property Sharing Agreement with her parents to set out the basis on which they co-owned the home and their respective obligations and rights. Depending on what she wanted to see happen to her interest in the home on separation with Alvin, a Contracting Out Agreement with Alvin may also have still been needed; or

(d) entered into a loan agreement with her parents requiring repayment of the monies they advanced so that on separation, the monies would be repaid back to her parents (who could have then advanced it to Rebecca alone again). Again, a Contracting Out Agreement with Alvin would have been prudent if Rebecca didn’t want to be in a situation where the home, after repayment of the loan to her parents, had to be shared equally with Alvin.

All was not lost for Rebecca – Contracting Out Agreements can be entered into at any time during a relationship, not just at its inception. Rebecca said Alvin had always taken the view that the monies from her parents was “hers”. Therefore, she believed that Alvin would willingly enter into a Contracting Out Agreement to confirm that the gift from her parents should be preserved as her separate property and she should receive this if they did eventually separate.

Worried about what may happen to your property if you separate? Going to gift money to your child to purchase his or her home? Looking to have your partner or spouse live in a home you are buying? Give the team at Family Law Results a call on 0064 9 297 2010 so we can help you ensure things are set up correctly in order to avoid shocks like Rebecca had!

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