Business

When a loan is deemed a gift

Do you have a legal question for Manny? Post it below this column.
Do you have a legal question for Manny? Post it below this column. John Weekes

ALAN and Sharon are looking to purchase a new home for $1.5m.

They obtain a loan from their bank for $400,000 and Alan's mother Vicki, advances the rest of the money.

Alan and Sharon sign a loan agreement with Vicki, to the effect that the money advanced by her is a loan, repayable upon demand.

The bank registers a mortgage over the property securing their loan.

The property is purchased by Alan and Sharon as tenants-in-common, with Alan receiving a 85% share, due to the money advanced by Vicki.

Vicki also makes a will, which includes a provision that upon her death, the money that she has advanced shall constitute a gift to Alan.

Many years later, Alan and Sharon's relationship breaks down.

Vicki then registers a second mortgage over the property securing her loan and makes a demand for repayment of the loan.

The loan is not repaid and Vicki commences proceedings against Alan and Sharon.

Sharon files a cross-claim, alleging that the money advanced by Vicki was not a loan, but a gift.

Sharon also commences family law proceedings, seeking a property settlement in her favour, on the basis that she is entitled to a share of the gifted money.

The primary judge finds that the money was a gift and orders Vicki to execute a discharge of mortgage.

Alan appeals the decision. The full court examines the circumstances surrounding Vicki's advance of the money.

The court finds that although Vicki had, at the time of purchase, advanced the money for the deposit as a gift, the balance of the funds were in fact a loan.

The court orders repayment of the loan to Vicki, plus interest, with the effect that Sharon cannot claim on these funds in the Family Law Proceedings.

If you would like Manny to address a particular legal issue, send your request to manny.wood@ticliblaxland.

com.au or call him on (02) 6648 7487.

Topics:  court hypothetical with manny wood loan money



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