Gifts in Property Settlements
When a marriage breaks down in Australia, there is an expectation that there will be a fair and equitable division of assets between the parties. It is generally understood that assets such as the family home will typically be sold and the proceeds divided, but the fate of other assets in the marital pool can be more uncertain. Gifts can be particularly problematic in property settlements. This area of law is governed by the Family Law Act 1975 and cases concerning division of marital assets, including gifts, are heard in federal court. This article examines Australian family law, including common law precedent, in relation to gifts in property settlements.
What is a Property Settlement?
The dissolution of a marriage usually means that the separating parties need to divide their marital assets. If the parties can agree privately on the terms of this settlement it can be finalised in a Binding Financial Agreement.
The first step in property division is usually the identification of the former couple’s assets and liabilities. Assets might include bank accounts, real estate, and superannuation, and liabilities are most often mortgage and loans. The assets of both spouses are considered part of the marital pool, but the division of assets is not always equal. A court will consider a range of factors, including the assets each person brought to the relationship, the contributions of each person during the relationship, both financial and non-financial, and the future needs of each person. For example, if one spouse is going to be the primary caregiver for the children, then the court may assume a lower earning capacity due to childcare responsibilities. Other factors that might influence the court’s decision are the person’s inability to work due to incapacity, illness or age.
Sometimes a spouse is concerned that they will receive a smaller proportion of the marital assets because they have not worked outside the home. However, the law does recognise that non-financial contributions such as child-care and household duties are as valuable as wages in terms of contribution to a household economy.
Gifts in Property Settlements
A property settlement is calculated based on the contribution each spouse made to the relationship, from their net worth at the start of the relationship to their income and their contribution to the household. Gifts are considered a contribution that the recipient brings to the relationship. For example, if someone receives a car as a gift from their parents, then that vehicle is an asset that the recipient brought to the relationship. When the relationship ends, it is common for people to try and claim these gifts as theirs rather than allowing them to form part of the pool of marital assets.
If a court is required to determine ownership of a gift, they will ask whether the gift was intended only for one spouse, or whether the gift was given for the benefit of both spouses. It is likely that upon the breakdown of a short marriage each spouse will retain individual gifts that they brought to the relationship.
By contrast, it is far less relevant who the original recipient of a gift was in a longer-term relationship. At the end of a long relationship, other factors are of equal significance in determining the final property division, and every case is considered on its own merits.
Gifts Between Spouses
The courts generally view gifts that are exchanged between married and de facto spouses as personal effects in a property settlement. Like all liabilities and assets, the gifts will be weighed according to their value at the time of the property settlement, instead of an insured valuation or the original purchase price. Even smaller value gifts must be listed on the Financial Statement used to determine the marital property pool.
The Engagement Ring
One of the most significant and symbolic gifts of a relationship is the engagement ring. This is typically an expensive gift, and there is some question about whether it belongs to the purchaser or to the recipient, and there is even some question about whether it should be considered an asset for property settlements.
What happens to an engagement ring depends partially on whether the marriage takes place. If the relationship terminates before the ceremony then the ring may be seen as part of an unfulfilled contractual agreement. Previous common law decisions often found that the ring belonged to the purchaser as it was given in contemplation of a marriage that never happened. Today, the court makes a decision based on factors such as the value of the ring, the length of the relationship, and whether the couple cohabitated.
For the purposes of property settlement after divorce, the value attributed to the engagement ring is the second-hand value rather than the insured value or the original purchase price. If the value of the ring is negligible, the judge typically allows the recipient to hold on to it. If, on the other hand, the ring could be sold for a considerable sum, then it will usually be counted towards the asset pool and divided between the spouses.
Pets as Gifts in Property Settlements
A common point of contention in a property settlement is which spouse will retain custody of the family pet. Under Australian law, domestic animals are considered property, and the spouse who bought and registered the pet can typically claim ownership of the animal. There are exceptions to this rule, and they usually relate to the principle of gift. For instance, in the 2017 case of Downey v Beale, while the husband bought and registered the family dog in his name, the court found that he had gifted the dog to his wife and she was the primary caregiver. She was able to keep custody of her dog.
Parental Contributions to Mortgages
It is increasingly more common for young couples to receive help from their parents in buying their first home. For the purposes of property settlements, such a gift is considered a contribution from the spouse whose parents gifted the original funds. There may be an exception if the circumstances suggest that the intention of the gift was to benefit both parties. If the court is satisfied that the parent’s contribution was not so much a gift as it was a loan, then they can choose to view the funds as a joint liability of the couple, to be repaid from the combined asset pool.
If you need more information about gifts in property settlements or other matters relating to divorce proceedings, please call Armstrong Legal on 1300 038 223 or send us an email to make an appointment.
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