In 2004, a man and his wife entered into a contract to buy a property in Drummoyne for $1,530,000. At this time, the man’s father paid the deposit of $153,000 which was initially intended to be a gift. However, prior to advancing the rest of the $1,200,000, the father changed his mind and the man and his wife acknowledged that the total advance was to be a loan from the man’s father. The man and his wife secured a loan from Westpac to contribute to the purchase price and the father paid the rest including stamp duty. The first mortgage to Westpac was registered on the title soon after completion. However, the second mortgage securing the father’s interest was not registered until the man and his wife’s marriage broke down in 2014. After the breakdown of the marriage, the father demanded the repayment of the sum of $1,200,000. When his demand was not met, the father sued his son and his son’s ex-wife stating that either that he is given possession of the property, or is entitled to sell it under the second mortgage.
The court first decided that all the money paid by the father for the purchase of the property was a gift to the son only and not the son’s wife. The court took into account a number of factors including the fact that the father made a statutory declaration to the bank stating that the $1.2 million dollars was a gift. The father claimed that after that statutory declaration he changed his mind and wanted it to be a loan and therefore requested loan documents to be drafted before he advanced the money.
The court however concluded that these mortgage documents were drafted for the sole purpose of protecting the family wealth and ensuring the money would not be part of the son and his wife’s joint assets in the event the marriage broke down.
The father decided to appeal this decision
The Court of Appeal considered what was said and done by the father and the son and the son’s wife in order to determine whether this money was a gift or a loan. The court acknowledged that even though the money was first intended to be a gift, this intention was changed by an agreement. The father and his son had a loan agreement drafted by a lawyer and this agreement was discussed and negotiated and it was agreed that the son’s wife be excluded from the agreement since she would never be able to have the funds to pay back the loan. The court decided that it was clear to all parties that the advance of money was to be by way of a loan secured by the second mortgage.
It is important for parents to seek legal advice when providing money to their children particularly for the purpose of assisting with a property purchase because ordinarily without any agreement, the law presumes a payment to a child from a parent is intended to be a gift. Rebutting this presumption requires intention at the time of the advance of funds that it was intended to be a loan and not a gift.