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A helping hand

Feature Articles

Cite as: December 2015 89 (12) LIJ, p.40

There are differing consequences where a parent assists their child with the purchase of property if that child is involved in property settlement proceedings under the Family Law Act 1975.

By Adrian Stone

snapshot
  • The ordinary application of equitable principles gives rise to a resulting trust if a contributor to the purchase of property is not registered on title.
  • A resulting trust will not arise if the parties are in a relationship where equity presumes the donor had intended to advance or benefit the donee.
  • Where presumptions regarding a resulting trust or an advancement arise, they are rebuttable by contrary evidence.
  • As the cost of real estate increases, so too does the incidence of parents advancing funds to their children to assist with the purchase of property. Beyond mere anecdotal perceptions, many lending institutions have created specific facilities to cater for those arrangements.1

    Obviously, if formal agreements surround the advance of money, such that the nature and effect of the advance is certain and enforceable, those agreements will serve to define associated rights and obligations. A formal loan will usually constitute a charge or liability on the gross property of the recipient. However, dealings within families are frequently informal – indeed they may be considered the opposite to being at “arm’s length”.

    Whether dealings between family members give rise to enforceable rights and obligations is dependent on the circumstances. There is no longer any presumption that family members do not intend to create legal relations in their dealings with one another. In the matter of Selen Austin J noted: “It is established by a long line of authority that, ordinarily, agreements made in a domestic or family context are not legally enforceable because the parties did not intend to create legal relations with one another . . . Although that may be the usual expectation, it is not now appropriate to accord the expectation the status of a rebuttable presumption. Evidence may always be adduced to prove the existence of the relevant intention to create legal relations. The party seeking to prove the contract bears the onus of establishing the relevant intention, and that intention is ascertained objectively from any written contractual document and the surrounding circumstances. As was observed by the High Court in Ermogenous: ‘. . . the search for the “intention to create contractual relations” requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) . . . Although the word “intention” is used in this context, it is used in the same sense as it is used in other contractual contexts. It described what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties’”. 2

    What ordinarily motivates parents to assist their children is understandable and commendable, but certain complications can arise when substantial advances are made, particularly if their son or daughter becomes a party to a matrimonial property dispute.

    When exercising jurisdiction under the Family Law Act 1975, courts are empowered to make orders altering the interests of the parties to a marriage or de facto relationship in the property of either or both of them.3 A basic condition to the exercise of that power is that a court must “not make an order under (ss79 or 90SM) unless it is satisfied that, in all the circumstances, it is just and equitable to make the order”.4

    In the unanimous judgment of Stanford v Stanford the High Court stated that “it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property”.5

    Where a parent has assisted their child with the purchase of property, how might that impact upon the identification of legal and/or equitable interests? In turn, what is the evidentiary process to be followed when making that assessment?

    In the decision of Biltoft the Full Court identified the “general practice” that had “developed over the years that, in relation to [property proceedings] the court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities”. 6 The Court went on to say however that an unsecured liability can be properly overlooked if it is “vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred”.7 Whether advances or purported loans meet these criteria is again dependent on the circumstances. The enforceability of a formal mortgage or a charge is itself subject to the Limitation of Actions Act 19588 An alleged debt is unlikely to be considered where the claimant has gained an advantage from representations contrary to its existence.9 An absence of documentation regarding the circumstances or conditions of a loan may otherwise render it too vague or uncertain to found a relevant liability.

    However, a lack of evidence regarding the express formation of a legal relationship, or even the intention to create one, does not necessarily preclude it from being recognised. As a general equitable principle, “a resulting trust will be presumed where, on a purchase, the legal title to real or personal property is vested in someone other than the person who is approved (by parol or other evidence) to have provided the purchase money”.10 Similarly, “where two people have contributed the purchase price in unequal shares, it is presumed that a resulting trust arises in the proportions in which they contributed the purchase money”.11

    The classic formulation of a resulting trust is found in the decision of Dyer v Dyer where Eyre LCB said that “[T]he trust of a legal estate . . . whether taken in the names of the purchasers or other jointly, or in the name of others without that of the purchaser . . . results to the man who advances the purchase money”.12

    Without requiring the formality of any declaration, a trust will accordingly result where one party advances funds for the purchase of property held in the name of another, or where their proportionate contribution to the purchase price is not reflected in the registered legal ownership. That presumptive (and here, admittedly oversimplified) principle is itself subject to a countervailing presumption. As described by the High Court in Nelson v Nelson, the “other presumption, that of advancement, is perhaps not strictly a presumption at all. Rather, the position is that there are certain relationships from which equity infers that any benefit provided for one party at the cost of the other has been provided by way of ‘advancement’. The consequence is that the equitable estate follows the legal estate and is at home with the legal title; there is an absence of any reason for assuming that a trust arose. The operation of the presumption of advancement may be rebutted by evidence of the actual intention, at the time of the purchase, of the parent or other person who provided the purchase money. Evidence also may be given to support the presumption of advancement”.13

    For family lawyers, presenting evidence of the circumstances surrounding any advance of funds is a critical exercise. It is not only relevant to the identification and quantification of the property subject to the courts’ power, but also informs the process of identifying respective contributions.

    If evidence supports a conclusion that an advance was intended to be an absolute gift, without proviso or condition, then the property will ordinarily form part of the divisible pool of property, subject to the usual considerations of contribution.14

    Evidence therefore as to intention is integral, whether for the purpose of refuting a resulting trust (by demonstrating that a gift was intended) or for the purposes of rebutting the presumption of advancement (by showing that a gift was not intended.)

    The categories of relationship that attract the presumption of advancement are limited, and are generally sought to be contained.

    In the Full Court of the Family Court’s decision of Zalewski15 the trial judge included the husband’s half-interest in a unit in the divisible assets of the parties. The purchase money had been provided by the husband’s father, and the unit was initially registered in the joint names of the father, the husband, the wife and the husband’s brother. (The wife later transferred her quarter interest to the husband.)

    The trial judge found that the father intended to benefit both parties and had intended an advancement to each of the husband, the wife and the husband’s brother. Accordingly, the half-share of the unit then held by the husband was included in the asset pool. On appeal, Coleman and Boland JJ stated that: “It is well settled law that the presumption of advancement could arise between the husband’s father and the husband and his brother, subject to rebuttal by contrary intention. An extension of the presumption to a daughter-in-law is not within the category of relationships recognised by the law . . . We agree with counsel for the husband and counsel for the wife that the presumption should not be extended to the wife. To do so would be contrary to recent judicial consideration of the doctrine which seeks to limit its applicability rather than to extend categories of relationships to which it could apply”.16

    In Australia, the presumption of advancement applies to transfers from husbands to their wives, from male fiancés to their female fiancées and from parents to their children.17 The reference to gender in these categories is an incident of their historical development. When considering the antiquated aspects of how the presumption evolved, McHugh J observed in Nelson (supra) that “the presumption of advancement itself may not accord with contemporaneous practices and modes of thought”. Nevertheless, in these instances, transfers of property that might otherwise invite the application of a resulting trust will be deemed an absolute gift, as equity presumes they were made for the advancement of the recipient. In matrimonial property proceedings, any attempt to rebut the presumption will ordinarily be led by that recipient, in an effort to exclude the advance from their divisible property.

    When that occurs, and as was stated in the decision of Gabini, “[w]here the presumption of advancement arises, an onus rests on the person seeking to rebut it . . . The presumption of advancement will be rebutted where there is admissible evidence that the transferor did not intend to gift the property or part of it. In Cummins v Cummins (2006) the High Court held: ‘. . . whilst evidence of subsequent statements of intention, not being admissions against interest, are inadmissible, evidence of facts as to subsequent dealings and of surrounding circumstances of the transaction may be received.’ The evidence by which any intention might be established is likely to vary from case to case. The High Court held in Calverley v Green that the correct time to determine beneficial interests in a property is at the time of acquisition. This is to be ascertained by drawing on evidence of the acts and declarations before and at the time of purchase or so immediately after it as to constitute a part of the transaction. Subsequent declarations could be received in evidence only if against interest”.18

    This means that when seeking to rebut either the imposition of a resulting trust or the presumption of an advancement, evidence of subsequent acts are inadmissible in favour of the person doing those acts, but are admissible against that person.

    The scope for contention about these issues will be reduced or removed if the parties enter into formal arrangements that record their intentions. The execution of a financial agreement between the child and their spouse may remove the prospect of any dispute arising. Where neither occurs however, practitioners should be aware that:

  • although it may be the expectation, an intention not to create legal relations in family dealings is no longer a presumption
  • the onus of proof lies on a party attempting to rebut an equitable presumption
  • a resulting trust will arise unless there is evidence that, at the time of an advance, it was intended to be a gift
  • within a relevant category of relationship, the presumption of advancement will rebut a resulting trust (or prevent it from arising) unless there is evidence that an advance was not intended to be a gift
  • evidence of what was intended is what “would objectively be conveyed by what was said or done” (per Ermogenous above)
  • what is admissible is what was said or done at the time of the transaction, unless it was said or done contrary to the interest of the person saying or doing it.
  • Adrian Stone is a director of Gold Stone Family Lawyers. 1. Eg, the Parent Assist package of Bluebay Home Loans, www.parentassistloan.com.au. 2. Selen & Selen and Ors [2011] FamCA 310 at [49]. 3. See ss79 and 90SM of the Family Law Act 1975 (Cth). 4. Ss79(2) and 90SM(3). 5. Stanford v Stanford (2012) 247 CLR 108. 6. In the Marriage of Biltoft (1995) 19 Fam LR 82 at 91. 7. Note 6 above, at 94. 8. See s20, Limitation of Actions Act 1958 (Vic). 9. See the discussion in Kazama v Britton (2013) 48 Fam LR 664 at 674. 10. J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (7th edn), LexisNexis Butterworths, 2006, p1210. 11. Vadisanis & Vadisanis and Anor [2014] FamCAFC 97 at [38]. 12. Dyer v Dyer (1788) 2 Cox 92 at 93; 30 ER 42 at 43. 13. Nelson v Nelson (1995) 132 ALR 133 at 140, per Deane & Gummow JJ. 14. Eg, see the decision of In the Marriage of Gosper (1987) 11 Fam LR 601 for an analysis of how gifts may be referrable to one spouse. 15. Z v Z; sub nom Zalewski v Zalewski (2005) 34 Fam LR 296. 16. Note 15 above, at 320. 17. J. Glister, ‘Is There a Presumption of Advancement?’ Sydney Law Review Volume 33, p40. 18. Gabini & Gabini [2014] FamCAFC 18 at [56].

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