How Are Significant Gifts Treated in a Post-Separation Property Settlement?

Following separation, a couple will need an agreement to divide their property between them. This process is known as property settlement. The process will involve dividing assets and liabilities with an expectation that there will be a fair and equitable division of the marital ‘pool’ between them.

A fair and equitable division may not mean equal shares. The Court considers a range of factors, including what resources the parties brought to the relationship and contributions during the relationship, both financial and non-financial. The future needs of each party will also be considered; for example, if one party is going to be the primary carer for any children. Another factor that may influence a Court’s decision is a person’s inability to work due to incapacity, illness or age.

The treatment of significant gifts can sometimes prove contentious and far from straightforward.

What is the ‘normal’ treatment of gifts in a property settlement?

A gift is normally considered a contribution that the recipient brings to the relationship. When a relationship ends, the recipient may claim that the gifts belong to them rather than forming part of the ‘pool’ for division between them. If a Court has to decide the ownership, it will consider whether the gift was given as a benefit for both spouses or not.

In a short marriage, each spouse is likely to retain individual gifts. However, in a longer-term relationship, these are more likely to become part of the shared pool, recognising that the value of a gift dilutes over time.

Gifts between spouses

The Courts generally view gifts exchanged between spouses as personal effects for the purpose of formalising a property settlement. The gifts will be based on the second-hand value at the time of the settlement rather than the insured value or original purchase cost.

Most personal effects will be of modest value and simply listed in the financial statement when a matter proceeds to Court. Nevertheless, it is important to be clear about how they are being treated.

Pets

In family law matters, pets are usually treated like chattels or other items of property. Normally the spouse who bought and registered the pet will retain custody. However, there can be exceptions. The case of Downey & Beale (2017) considered the position of a dog, which the wife argued had been a gift from her husband. The husband had paid for the dog and it was registered in his name, although the wife had always been the animal’s primary carer. The Court decided she should keep custody of the dog.

Parental contributions

It is not uncommon for young couples to receive financial help, often substantial, from their parents. The gift is normally deemed to be a contribution to the relationship by the person whose parents made the gift unless there is evidence to determine otherwise.

Case Study: Mabb & Mabb and Anor (2020)

During the Mabb’s 12 years marriage, the husband's parents transferred 60 acres of land to the couple jointly. Following their separation, Mr Mabb argued that the property was a contribution made solely for him. The trial judge disagreed with Mr Mabb, a decision which was then subsequently endorsed by the Full Court of the Family Court.

The Court inferred from the facts that the donors had intended to benefit the parties jointly. At the time of the transfer, it was suggested that they were transferring the land on the basis that both spouses would support them should the need arise. Indeed, Mr Mabb’s parents built a house on the land and lived there. Meanwhile, Mrs Mabb maintained a good relationship with her husband’s parents and continued to do so even after her separation from their son.

This case highlights that where there is a gift, it will be important to present the Court with evidence of the donor’s intention at the time the gift was made. The Court will wish to consider whether the donor had made it clear who was to benefit from the gift; was there any written record as to whether it was intended for the benefit for both spouses; was a transfer of land and buildings held in joint names or not; and was the gift in exchange for something or a future obligation of both spouses or just the recipient?

Was a transfer of funds meant to be a gift or a loan?

When a parent or other family member has advanced a substantial sum of money, the characterisation as to whether it was meant to be a loan rather than a gift can significantly impact the pool of assets. If considered a loan, it will normally be treated as a joint debt reducing the net assets available for division and distribution.

Determining the intention of a gift

Determining how a gift is to be dealt with in a family law property proceedings will depend on the nature of the gift, the specific circumstances involved and the intention of the donor.

Substantial sums can be involved even though it is often the case that loans between members of a family are made informally, leading to difficulties in the event of a dispute. If a cash advance is meant to be a loan, consideration should be given to a formal agreement. The terms of the agreement should be adhered to or risk being deemed a gift.

If it is a gift, it needs to be clear for whom the gift is intended. For large gifts, whether cash or other assets, a financial agreement may be appropriate.

Contact our Property Settlement Lawyers in Sydney, NSW

At Szabo & Associates Solicitors, our specialist team of family lawyers are highly experienced in property settlement matters. We can provide you with expert advice on how income, financial resources, property and debts will be distributed between you and your former partner in the event of a separation or divorce. Please contact us on 02 9281 5088 or fill in our online contact form.