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Inter-family transactions: Is it a gift or a loan?

Inter-family transactions: Is it a gift or a loan?

By David Riddiford


In family law proceedings, the family loan or gift is a significant issue for solicitors to deal with.

  • The rapid rise in the value of real property has created an environment where many people require an injection of family money to enter the property market.
  • Where the solicitor is consulted by the provider of funds prior to the transfer of funds attention must be given to ensure the transaction is entered into in a manner that will be held to be enforceable.
  • Where the solicitor is consulted about the status of the transfer of funds after a relationship breakdown, an early assessment needs to be made of how the funds are likely to be treated in ensuing litigation.

Statistics collated by the Australian Bureau of Statistics over the past 25 years have recorded substantial rises in the capital value of residential property along the eastern seaboard of Australia.

This property boom has presented a significant financial challenge to young couples seeking to enter the residential property market. In an economic climate of modest wage growth and a cautious commercial lending environment, many young couples have sought financial assistance from the so-called “Bank of Mum and Dad” in the form of a lump sum payment to assist in the acquisition of a home.1

Before an inter-family transfer of funds is effected, a solicitor may be consulted about documentation that should be completed to protect the funds in the event the relationship breaks down. This may involve preparation of loan documentation or insertion of an appropriate clause in a financial agreement prepared pursuant to ss90B, 90U, 90C or 90UC of the Family Law Act 1975 (FLA). 

While the procedure for completing financial agreements under the FLA is set out with precision in the legislation, the solicitor should be vigilant to ensure the loan documentation can be held to be enforceable in any subsequent litigation. In the event of a breakdown, it may be asserted by the adult child’s partner that the inter-family transaction was entered into when he/she was under duress, unfair pressure, undue influence or in circumstances that otherwise make the agreement unenforceable such as an assertion that the money advanced was a gift and/or a loan that would not be called on. To mitigate against such an assertion, the prudent solicitor will ensure that the terms of the loan are not onerous and that correspondence and file notes are completed to show that all parties to the transaction have received appropriate advice and fully understand the nature of the transaction.2

Alternatively, after the breakdown of the relationship, the solicitor may be consulted where the characterisation of the inter-family transaction is in dispute. In this context the solicitor will be required to assess the available evidence surrounding the provision of funds and, if acting for the parent, consider whether or not the parent will need to intervene or be joined to the proceedings.3

The manner in which the inter-family transaction is characterised in family law litigation will determine the ability of the parent to recover the funds and have a significant effect on the division of relationship property. The difference between characterising the inter-family transaction as a contribution4 under the FLA by the party whose family provided the lump sum or as a loan repayable from the relationship assets can amount to a significant sum of money.

The question, therefore, arises as to the approach that should be taken by the solicitor in characterising the inter-family transaction. At law, the relationship of parent and child establishes a presumption of advancement and the recipient adult child is deemed to have received the lump sum by way of a gift towards the acquisition of the real property and not a loan.5

The presumption of advancement is rebutted by evidence. In Cross on Evidence,6 the section on presumptions states that “a presumption means nothing more than a conclusion which must be drawn until the contrary is proved” or as it was explained by Deane and Gummow JJ, “The presumption of advancement may be of practical importance only if the evidence . . . does not enable the court to make a positive finding of intention”.7

Therefore, if the inter-family advance is to be characterised as a loan and not a gift, evidence will have to be adduced to establish on the balance of probabilities that it was the intention of the parties that the lump sum was paid by the parent to the adult child on the express condition that it should be repaid. It is the requirement for repayment that is relevant, not the motive of the parent in making the lump sum payment which may, unlike that of a commercial lender, be benevolent.8

Proving the existence of an inter-family loan in family law proceedings will often be problematic. In AF Petersens and AF Petersens (Petersens), Nygh J succinctly set out the task for the party asserting the existence of a loan rather than a gift when he stated: “In taking account of the ‘obligations’ of the parties, I must consider how pressing such an obligation is. It is fairly common in this Court to meet a situation where a parent has made a loan to a child which is in all respects legally enforceable, but which is not in fact enforced and would not really be expected to be enforced. It is no doubt ‘an obligation’ but if the obligation is not likely to have to be met, it should not be taken into account”.9 This inherent difficulty in proving that an inter-family transaction should be treated as a loan was also highlighted in Strand v Strand (No. 2) (Strand)10 where it was stated by the Full Court at [25] that “even if a contract of loan is established, it does not necessarily follow that any liability so created will be taken into account in determining a just and equitable alteration of property interests. The court may properly determine not to take into account an unsecured alleged liability in certain circumstances including where the alleged liability is vague or uncertain or unlikely to be enforced”.11

In the absence of a written loan agreement a bald statement from a party setting out the bare bones of the transaction, although admissible evidence,12 will generally not suffice in rebutting the presumption of advancement. The proof of evidence from the client asserting the existence of the loan should set out, first, the circumstances surrounding the parties’ intention to create legal relations and, second, terms that are consistent with a loan agreement, namely that the money advanced from the parent to the child had to be repaid, the requirement for repayment being the fundamental characteristic of a loan.13

The party or witness asserting the existence of the loan should be prepared by the solicitor for a cross-examination at trial that will seek to highlight the different approach taken by the parent to the repayment of the alleged loan compared to the approach that could be expected to be taken by a lending institution. For example, the parent may be asked if repayment would be sought if the personal financial circumstances of the adult child changed as a result of unemployment or the illness of a family member. And if it is stated under cross-examination that the repayment of the loan would not be insisted on by the parent where the financial circumstances of the adult child changed, it could be anticipated that opposing counsel will submit that the approach taken by Nygh J in Petersens should be followed.

Further, for the sake of completeness and to avoid the possibility of a Jones v Dunkel14 inference being drawn at trial, a proof of evidence from both the party who received the lump sum and the party who provided the lump sum should generally be obtained, although each case will need to be considered on the particular facts and the failure to call evidence from the provider of funds will not necessarily lead to a “Jones v Dunkel” inference.15

If, however, there is documentation setting out the precise terms of the loan transaction signed by the parent and the adult child who received the funds that is entered into contemporaneously with the transfer of funds, then the client will be in a stronger position to assert the existence of a loan in family law litigation.16 The case for the existence of a loan will be further bolstered by one or more of the following documents:

  • an agreement setting out the terms of the loan that is signed by the adult child’s partner
  • a ledger recording the details of all repayments made pursuant to the agreement
  • an executed unregistered instrument of mortgage with the adult child and his/her partner named as mortgagors 
  • a letter from the parent addressed to a primary mortgagor informing it of the terms of the loan and the unregistered mortgage.

While there may not be a written loan agreement evidencing the transaction, instructions should be obtained about any other documentation that could be adduced as evidence about the intent of the parties when the transaction occurred. Such documentation could be a letter to a mortgage provider setting out the nature of the advance of the lump sum, a statement to Centrelink or the Australian Taxation Office (ATO) where, for example, the lump sum advanced has been recorded as an asset of the parent who made the advance, or a ledger statement prepared by the parties setting out the details of repayments made and the ongoing outstanding balance. It is important to ascertain the content of documentation of this kind because it is likely that this material will be obtained under subpoena or discovery by the other party in any litigation.

In this context, it should be noted that although post contractual conduct is not admissible evidence about how the terms of a contract should be interpreted, such conduct is admissible on the question of the existence of a contract.17 Therefore, statements made or forms completed by the parties post the transaction are admissible evidence about the status of the transaction. At the same time, however, actions taken or documents completed on or around the date of separation or thereafter such as lodging a caveat that purports to secure a loan will carry little if any evidentiary weight and have the propensity to adversely affect the credit of the party seeking to rely on them.

Once the solicitor has collated all the material that may be relevant to establishing the intent of the parties at the time the transaction was entered into, it may be that some of the material is contradictory.

For example in the Full Court case of Strand & Strand (No. 2)18 the court was confronted with two signed documents which were, on their faces, inconsistent. “The first was a letter to the mortgage broker acting for the (adult child) confirming that the advance was by way of gift; the second was a loan agreement providing for the (adult child) to repay 

. . . the amount advanced, plus a share of any increase in the value of the relevant property”. The Full Court noted that the explanation given at trial for the execution of the latter document was that “it was intended to afford to the adult child a measure of protection if he separated from his then partner and a claim was made against his property”. Accordingly it was held by the Full Court that the characterisation of the transaction as a gift was open to the trial judge.

On occasion, the material collated by the legal advisor for the purpose of establishing the intent of the parties at the time the transaction was entered into may uncover a potential illegality committed by the client. For example, a client may be asserting the existence of a loan whereas in previous representations to Centrelink, the ATO or a lending institution a different representation was made. 

Such conduct is likely to have a significant impact on the credibility of the evidence of the party or witness who has engaged in such conduct. There is, however, no rule of evidence or principle precluding the admission of the contrary assertion into evidence in the family law proceeding. Rather, the effect to which the contravention of a public obligation will impact on the assertion of a private right is a matter that falls within the discretion of the trial judge and whether the evidence is admitted or excluded will depend on the particular facts of each case.19

Once the evidentiary basis of the alleged loan has been established, the solicitor should consider the relevance or otherwise of s5(1)(a) of the Limitations of Actions Act 1958. The time that an action accrues in relation to the enforcement of a contract of loan depends on the terms for repayment set out in the specific agreement. If, however, the alleged loan is said to be repayable on demand or in some similar fashion such as on request or at call, then the obligation to make payment is treated as having arisen instantly on the making of the loan.20 Therefore, if a parent has provided funds repayable on demand, then after a period of six years from the date on which the funds were provided, the Limitations of Actions Act will provide for a defence to be pleaded that will defeat a claim for repayment of the outstanding funds.21

In family law proceedings, a statute barred inter-family loan would be treated as a “contribution” by the party to the relationship from whose family the loan was obtained.


The role of the solicitor in acting for a party involved in an inter-family transaction can therefore be summarised as follows:

  • if the solicitor is consulted before the inter-family transaction being effected, the task is to ensure that a loan documentation and/or financial agreement is completed that establishes the intent of the parties to create a legally enforceable obligation to repay or quarantine the lump sum 
  • if the solicitor is consulted after the transaction has been completed in the context of potential litigation, the task of the solicitor is to collate all evidentiary material and provide a timely assessment about the likely manner in which the inter-family transaction will be characterised by the court in family law proceedings
  • if the solicitor who has prepared documentation in respect to an inter family transaction is subsequently consulted by a party to the transaction following the breakdown of a relationship, careful consideration needs to be given as to whether or not there is a potential conflict that could arise by acting for that party in family law litigation as the solicitor’s previous involvement in the matter by way of taking instructions or witnessing documents may lead to the solicitor being called to give evidence in the matter. 

David Riddiford has been a registrar in the family law courts since 1999. He was admitted to practice as a barrister and solicitor in 1984 and became an accredited specialist in family law in 1998. 

1. Senate Economic References Committee, Out of Reach? The Australian housing affordability challenge (May 2015).
2. Chaudhary v Chaudhary [2017] NSWCA 222. This judgment of the NSW Supreme Court of Appeal sets out some of the potential pitfalls for a solicitor instructed to document the inter-family transaction.
3. Spender & Spender [2011] FamCA 499. Cronin J provides a summary of the leading cases on joinder and an analysis of the differing Rules pertaining to joinder in the Family Court of Australia and the Federal Circuit Court of Australia. See also Georgiades & Georgiades & Ors [2015] FamCA 67 where Berman J gives consideration to Bulloch & Sanderson Costs Orders in the context of a parent being named as a respondent in family law proceedings.
4. Skourta & Skourta And Ors [2018] FamCA 897, Gosper & Gosper (1987) FLC 91-818.
5. Nelson & Nelson (1995) 184 CLR 538 at p600, McHugh J. Not a loan and also a presumption against the existence of a resulting trust.
6. JD Heydon, Cross on Evidence, LexisNexis Butterworths, 9th edn, 2013, 7240.
7. Note 5 above, at p547.
8. Berghan & Anor v Berghan (2017) QCA 236.
9. AF Petersens and AF Petersens (1981) FLC 91-095 at 76669.
10. Strand & Strand (No. 2) [2018] FamCAFC 247, Strickland, Ainslie-Wallace & O’Brien JJ.
11. See also Biltoft & Biltoft [1995] FLC 92-164, Rodgers & Rodgers (No. 2) [2016] FLC 93-712 where the Court’s discretion to take into account debts generally is discussed.
12. Britt & Britt [2017] FamCAFC 24.
13. Bagshaw & See [2019] FamCA 482 at [250]-[302]. McClelland DCJ sets out a summary of matters that should be considered when obtaining a proof of evidence together with relevant caselaw. 
14. Jones & Dunkel [1959] 101 CLR 298, the inference being that when a party fails to call a relevant witness it can be inferred that the witness’s evidence would not have assisted that party’s case.
15. Masoud & Masoud [2016] FamCAFC 24.
16. Note 15 above.
17. Heydon JA, Brambles Holdings Ltd. v Bathurst City Council [2001] 53 NSWLR 153.
18. Note 10 above.
19. Note 5 above. Here the High Court of Australia considered the effect of an illegality on the ability to assert the existence of a resulting trust. On occasions, it may also be prudent to advise the client that the trial judge has a discretion to refer a serious illegality to the Commonwealth Attorney- General.
20. Ogilvie v Adams [1981] VR 1041.
21. Baker v Culvenor ([019] VSC 224.

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