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Gifting money to a child going through a divorce can be a delicate and complicated process. The main question often revolves around how to provide financial assistance without risking the funds becoming part of the divorce settlement.
To gift money to a divorcing child, it’s important to structure the gift in a way that offers protection. One approach is making the gift conditional or documenting it as a loan rather than an outright gift.
In some cases, placing the funds in a trust or using other legal mechanisms may safeguard the gift from becoming part of a divorce property settlement.
Gifting vs. Loaning: Understanding the Differences
The distinction between a gift and a loan is significant in family law. A gift is typically considered an unconditional transfer of money or assets, while a loan implies the expectation of repayment.
If a parent gives money to a child without any documentation, the court is likely to consider it a gift and could include it in the asset pool during a divorce settlement.
On the other hand, a properly documented loan with clear terms of repayment may be excluded from the asset pool.
Legal Documentation: How to Safeguard Your Gift
Proper legal documentation is crucial if you wish to protect the money you give to your divorcing child. A written loan agreement that outlines the terms, conditions, and repayment schedule can help clarify the intent of the transaction.
Such documentation may serve as evidence in court that the money was a loan, not a gift, thereby excluding it from the matrimonial asset pool. Additionally, using third-party witnesses and ensuring the loan is treated formally can further strengthen the legal standing of the transaction.
Protecting Money with Trusts
Establishing a trust is another method for protecting financial gifts from being included in a divorce settlement.
A trust is a legal entity that holds and manages assets on behalf of a beneficiary (your child, in this case) according to specific terms and conditions.
By setting up a trust, you can specify how and when your child can access the funds, potentially preventing the money from becoming a marital asset during the divorce.
Different types of trusts, such as discretionary or irrevocable trusts, offer varying levels of protection.
Timing of the Gift: Before or After the Divorce?
The gift’s timing can play a significant role in how it is treated in a divorce proceeding. A gift made before the divorce may be more susceptible to being included in the matrimonial asset pool, depending on how the money was used.
On the other hand, a gift made after the divorce proceedings have begun is less likely to be contested, as it won’t directly influence the asset division.
Consulting with a family law specialist before gifting money can help ensure the timing is appropriate and the gift is structured in a protective manner.
Involving a Legal Professional
Seeking legal advice before gifting or loaning money to your divorcing child is always advisable. Family law specialists can help structure the transaction in a way that minimises the risk of the funds becoming part of the divorce settlement.
They can also assist with drafting loan agreements, setting up trusts, and advising on other legal strategies to protect your gift. You may inadvertently expose the money to divorce proceedings without proper legal guidance.
Gifting money to a divorcing child requires careful consideration and planning. The best way to safeguard the funds is through legal documentation, such as a loan agreement or trust, and by seeking expert advice.
Properly structuring the financial assistance can help protect your gift from being included in a divorce settlement, allowing you to support your child without risking their financial stability.
Director of Melbourne Family Lawyers, Hayder manages the practice and oversees the running of all of the files in the practice. Hayder has an astute eye for case strategy and running particularly complex matters in the family law system.