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Dealing With Financial Gifts & Inheritances in Event of Separation

Concern often arises around the weight given to past financial gifts or inheritances from family members when a decision is made to divide joint property.

In many cases, a couple are assisted significantly by money gifted for a house deposit, during difficult times or upon the birth of children. Similarly, one spouse may receive inherited funds. Certainly whilst the relationship remains on foot, these funds are routinely absorbed into joint finances and often spent on everyday expenses.

In the event of separation, it is not unusual for these gifts to suddenly be referred to as `loans’, repayable on demand but without the formality of any written documentation. This is often a calculated response, and it’s important to appreciate that the Court is unlikely to accept the suggestion of a loan in the absence of written agreement, and some evidence of repayment.

The law gives due recognition to these gifts by making an adjustment to the broader property pool in the favour of the spouse who has received the gift. This may not occur if there is evidence to suggest that the gift was to you both, or alternatively intended to compensate for some kindness, eg. Caring for an elderly parent in a family environment.

The nature and extent of the adjustment will depend upon the size of the gift relative to the broader property pool available for division, how long ago the gift was received, and what the gift was used for. It is fair to say that lump sum gifts or inheritances utilised for the acquisition of an asset, or payment of a specific debt is more traceable and more likely to attract a more definite adjustment.  Where funds are simply absorbed by a couple and spent on day to day expenses, it becomes more difficult to assert the significance of that gift some months later. Keeping good records is also important. Obviously in many instances the other spouse is likely to acknowledge the gift or inheritance, the benefit of the funds and the need for a corresponding adjustment.

If you wanting to gift funds to an adult child, but consider it important to ensure that the gift is recognised as one to your child personally, then consider drafting correspondence to accompany the gift which clearly states your intention.  If the funds are intended as a loan only then ensure that appropriate paperwork is drawn up, and a schedule of repayments entered into.