When a relationship breaks down, one of the critical steps in the process of separation is the division of property. This includes calculating the assets, superannuation, and liabilities that form the property pool. However, complications can arise when there is a dispute over whether funds received from family members, particularly parents, should be considered a loan or a gift.

In many cases, one party may claim that a payment from a family member was a loan, while the other party argues that it was a gift. The distinction between a loan and a gift is crucial, as it can significantly impact the available property for division between the parties. If the court determines that the funds were a loan, it will result in a reduction of the property pool, whereas if it is deemed a gift, the amount will form part of the property for division.

In deciding whether funds loaned to a party by a parent should be considered a loan, the court considers several factors. These include the formality of the loan, the terms of repayment, any demands for repayment made, and the capacity of the party to repay the amount loaned. Ideally, loans should be documented, registered correctly, and repaid in the normal fashion to avoid ambiguity.

However, issues arise when there is an unsecured debt owed to family members that is not documented. In such cases, the court is generally sceptical and seeks evidence to determine the nature of the transaction. If one party claims that there is a loan payable to a family member without documentation or clear evidence that the loan will be called upon in the future, the court may disregard the loan.

Moreover, if one party disposes of the money by repaying the loan after separation, this can be seen as an attempt to defeat the other party's claim to part of the property pool if it is later found that the funds were a gift. The court considers the pressing nature of the obligation to repay the loan and whether it is likely to be enforced in determining whether it should be taken into account.

In summary, the court looks at various factors to ascertain whether a loan from a family member should be considered a gift or a loan. It is advisable to seek a barrister's opinion on the matter based on all the evidence available. This can help clarify the nature of the transaction and ensure a fair and equitable division of property.

In conclusion, navigating the complexities of family loans in the context of property settlement requires careful consideration and expert legal advice. By understanding the factors that the court considers in determining the nature of the loan, parties can better position themselves to protect their interests and achieve a fair outcome.

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