‘I’m getting divorced. What will happen to the $154,000 my mother gave me?”

Family loans are such a tricky area, which is no doubt why they comprise such a large number of the questions sent to our resident legal eagle, Brian Herd, who was recognised again this year as one of Australia’s finest practitioners in the elder law arena.

Q. My mother contributed $154,000 to my house over the span of 16 years. The money went towards everything from deposits to carpet, renovations etc. My Centrelink payments were used to pay the mortgage for 16 years and my mother’s money that she gave me was intended to make my home comfortable, as I have many physical disabilities and mental health issues. My mother gave me the money so I could build an extra room in my house so that when she gets old I can look after her, kind of like her superannuation and inheritance all rolled into one. I’m now facing divorce and my ex-husband wishes to sell the property and wants 45 percent of its value. I have only a couple of receipts so cannot prove how all of the $154,000 was spent. Could you advise what can be done in this situation?

A. This is a common problem in family law property matters. What happens to your mother’s contribution of $154,000 depends on whether she gave (gifted) or lent the money to you (and your husband). If it was an unconditional gift, she is not entitled to get it back, and I would suspect your husband would heartily agree with that. If it was a loan, technically, she is entitled to receive it back.

No doubt, as usual, the arrangement was not documented meaning it will be a ‘he said/ she said’ arrangement or worse, there was no arrangement or understanding at all. I can feel a lawyer’s picnic coming on so best get legal advice pronto.

Q. My father-in-law recently gifted us a fairly large sum of cash that he had saved, with the intention that we use it to pay off our mortgage. We’re uncertain how to go about it. Is there any reason we can’t use it for that?

A. My first piece of advice is to have your father-in-law sign a small piece of paper to confirm it is a gift. That will avert any later change of mind that it was really meant to be a loan. I would also clarify with him whether the gift comes with  a condition that the money only be used to pay off the mortgage or can it be used (or some of it) for other purposes. If it does, then it should only be used for that purpose, otherwise, if it is not, he could ask for it back.

Q. Where do I stand if I ‘loan’ money to my daughter and son-in-law to enable them to make a property purchase and they then separate?

A. Hard to say where you stand if all you do is ‘loan’ the money to them without any mutual understanding or record of the terms and conditions, such as when is it repayable. If you expect to get it back, you would be well advised to put the terms and conditions of the loan in a written document. If you don’t and they do separate, you can expect your son-in-law to say it was a gift.

Be careful with loans that are repayable on demand i.e. whenever you ask for it back. There is a time limit on seeking to recover the loan if it is not repaid when demand is made. That time limit is six years from when the loan was made,  not from when the demand was made.

If you have a question for Starts at 60’s money experts, email it to [email protected].