When a relationship breaks up, the matrimonial property may need to be divided between the parties. The court will go through the following steps:

  1. determining whether it is appropriate to make an order dividing the property at all;
  2. identifying and valuing the assets, liabilities and financial resources (otherwise known as 'the pool' or 'matrimonial property');
  3. assessing each party's contribution to the pool;
  4. assessing each party's future needs;
  5. determining what is just and equitable in all the circumstances.

Parental gifts aer an issue at step 3 - when assesing each party's contribution to the pool.

One of the factors the Court will consider is the direct or indirect financial contribution made by or on behalf of a party to the marriage to the acquisition, conservation or improvement of matrimonial property.

Parental gifts are financial contributions made on behalf of...whom? You alone? Or you and your spouse jointly?

Sometimes it's difficult to tell. Parents do not always have clear intentions about whether the gift is intended for you alone, or you and your spouse together. The waters are further muddied because, in almost all cases, your spouse will inevitably receive some indirect benefit from the gift (e.g. living in the gifted home, or paying less on the mortgage) – even if it was intended for you alone.

In most cases, the Court will assume that your parents intended the gift to go to you alone. Therefore, the gift will be counted as your contribution to the marriage. This doesn't necessarily mean that you will "keep the house" – but it will certainly work in your favour.
If your spouse wants to argue that the gift should be counted as a joint contribution, he/she will need to provide evidence that your parents intended to give the gift to both parties. This is difficult to prove, but has been successful in some cases (for instance, where the gift is in recognition of both parties' service to one party's parents).

The fact that the property is registered in the name of one or both parties is not determinative. The Court has wide powers to alter property interests and order the transfer of property between the parties.

What does this mean for me?

If your parents provide a financial gift, it's better for you if they provide it to you alone. Of course, this is ultimately a decision for your parents, not you.

If you are the other party, and your spouse's parents provide a financial gift, you may wish to seek some clarification about who exactly the gift is intended for. If it's intended for both parties, it's preferable to get that in writing.

Ultimately, the best way to quarantine certain assets from the matrimonial pool is to enter into a binding financial agreement. This can be done before or during the marriage, and provides far more certainty for everyone involved.

For further information please contact:

Annette Wilson, Partner
Phone: + 61 2 9233 5544

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.