A Matter of Trust - Parents Assisting their Children
with purchasing real property - and then it all goes wrong!
It is common for parents to provide financial assistance to a child in the form of cash which is then put towards the purchase price of their child’s first home. This can happen before their child marries or enters a de facto relationship or during their child’s marriage or relationship.
Often the provision of such financial assistance is never properly documented, thereby leaving a great degree of uncertainty for all parties. Real problems then arise when the child’s marriage or relationship ends and the parent then wants their money back because they do not want their child's former spouse or partner to benefit from their generosity, and either claim,
- that the money provided was by way of a loan, or
- the provision of the money created an interest in favour of the parent in the home purchased.
The Family Court is often asked to adjudicate on these issues which may also involve the parents being joined as parties to the court proceedings.
It is also often the case that in the absence of any proper documentation, the Court will find that the generosity of the parent should be classified as a gift. However, that is not always the case.
The law surrounding these issues is complex and covers areas such as:
- the laws of resulting or constructive trusts; and
- the presumption advancement.
When two people have contributed to the purchase price of a property in unequal shares it is presumed that a resulting trust arises in proportions in which they contributed the purchase money.
Presumption of advancement
The presumption of a resulting trust is, however, subject to the exception created by the presumption of advancement. That presumption of advancement is raised when the relationship between the parties is such that it is more probable than not that an interest was intended to be conferred (ie. gifted). For example, a relationship between parent and child gives rise to the presumption of advancement. Therefore, unless there is compelling evidence to the contrary, in this instance, any contribution by a parent will be considered a gift. The generosity of the parent will then be considered a financial contribution by the child who received the gift but no more than that.
A constructive trust will be imposed when it is fair to recognise a person's contributions which he or she made to a property for a particular purpose which then fails, when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them. For example, if a parent contributes 85% of the purchase price to a property and the relationship then fails there is available to the parent the argument that the 85% is held by the owners of that property on constructive trust for the parent.
These types of arguments are complex, expensive and emotionally draining.
What this area of the law highlights is the importance of advice being given to clients, whether they be parents or children, to have any provision of funds properly documented, in the form of loan agreements, mortgages or trust declarations or a combination of both.