Families regularly provide financial assistance to each other. Because they often do it in an informal way, various legal complications can arise. Having the Courts untangle these complications is not a straightforward process. Equity provides us with certain rebuttable presumptions, such as the presumptions of advancement and resulting trust to assist them but in the absence of cogent evidence before the Court, it can be extremely difficult to predict the outcome of a matter.
This post examines the process that the Court would undergo in exercising its jurisdiction under s79 of the Family Law Act(Cth) 1975, and the difficulties it faces in determining the nature of family transfers in the absence of clear evidence of the intention of the transferor. It pays close attention to the application of various presumptions (ie resulting trust and advancement). Ultimately what becomes clear is that if a person wishes to help out their family by way of loan, it is advisable to record the intention clearly and in writing.
The Significance of Ambiguous Family Transfers
Imagine a common scenario involving the transfer of money from a parent or parent-in-law to a married couple over the course of their marriage, who are now involved in property proceedings under s 79 of the Family Law Act. There is now $1 million in the asset pool and we assume that, taking contributions and any s75(2) matters into account, there will be an equal division of property. During the marriage the Wife’s father transfers $500,000 to the Husband and Wife by way of loan to help the parties financially (to put a deposit on a first home, pay their mortgage, send their children to private school etc). There is no paperwork and the Father has since passed away leaving the Wife’s mother as widow and only beneficiary of his estate. The husband admits that the parties received the money over the course of the relationship (ie there’s no dispute as to the amount) but denies that it was by way of loan; he claims rather that the money was a gift.
What does the Court do? On the face of it, whether the money was a loan or a gift (or held on trust) makes a substantial difference. Pursuant to s 79(2) the Court must first determine the size of the asset pool before dividing it2; so it follows that if the wife’s claim is accepted, the debt of $500,000 must be repaid to her Father’s estate (ie her mother) first. Assuming a 50/50 split, this would leave each party with $250,000. But if the Husband’s claim is accepted, the $500,000 is not repaid, and the Husband would receive half of $1 million (ie $500,000). This is a $250,000 ‘windfall’ and if the Wife then has to repay her mother/family the original $500,000, she will end up with essentially nothing from the division of assets. In different terms, if the transfers are to be characterised as gifts, then the Wife’s side of the family (including the Wife) only ends up with $500,000 instead of $750,000.
There are essentially 3 possible ways to characterise the transfers:
a) loan;
b) resulting trust3; and
c) gift.
Because the characterisation ultimately depends upon the intention of the transferor 10, once the Court determines the intention, it will be able to characterise the transfer. Often there will be evidence of the intention which will be used to prove it. So how does the Court give effect to the transferor’s intentions in the absence of evidence? Let us assume that there is no cogent evidence of the transferor’s intentions: there is no documentation, the transferor is deceased, and neither party can satisfy the Court either way on the balance of probabilities. Where does the Court start?
Problems of Proof – Onus and Absence
An absence of evidence is not usually a problem in regular civil claims. Normally the burden and standard of proof determine a cause of action. For example, if a plaintiff fails to prove (on the balance of probabilities) all of the material facts necessary to establish a personal injuries claim, it fails. Similarly, if a plaintiff does prove all of the material facts, but there is a defence available, then it is up to the defendant to prove the material facts necessary to establish the defence (and if the defendant fails to do this, the plaintiff succeeds). The burden and standard of proof become, therefore, our adversarial system’s way of breaking a legal deadlock. In the absence of one party proving their cause, the other party wins. Unfortunately this mechanism for breaking a legal deadlock does not apply to a matrimonial property dispute. Applicants and respondents do not make out elements of a cause of action pursuant to s79 of the Family Law Act. Rather, once an application under s79 comes before the Court, it must make an assessment of what a just and equitable division of property will be. The burden and standard of proof are still relevant4, but the Court lacks the luxury of being able to disqualify a party who fails to vault the particular hurdle, because it is possible that both parties may fail to vault the hurdle (and the Court can’t disqualify them both). Putting it another way, there is no such thing as a ‘no-case submission’ in family law.
To illustrate this conundrum, let us return to our scenario. The first step is to determine whether the transfer was a loan. The onus would be on the Wife to prove this (on the balance of probabilities) given that she is the party which asserts it as fact. Let us assume that she is unable to do so because of the assumptions we have made about a lack of evidence; the Court therefore finds that the transfer was not a loan.
Presumptions of Resulting Trust and Advancement
The next step for the Court is to choose between a gift and a resulting trust. It is in the Wife’s interest that the transfer be characterised as a resulting trust, and the Husband’s that it is a gift. Normally it would be for the Wife to lead evidence in support of proving her contention, and similarly for the Husband to prove his, but we have assumed that there is not enough evidence to satisfy the Court on the balance of probabilities either way. How then, does the Court break the tie? Enter the competing presumptions of resulting trust and advancement. These presumptions, in the words of Murphy J in Calverley v Green [1984] HCA 81: ‘arise from common experience… if common experience is that when one fact exists, another fact also exists, the law sensibly operates on the basis that if the first is proved, the second is presumed.’ The presumption of resulting trust arises in our example because when somebody’s money (here the Father’s) is used to purchase property in somebody else’s name (here his daughter and son-in-law) without consideration it is presumed that he did not intend them to have a beneficial interest in it.5 Finding thus would be significant, depending upon how the money was spent, because a proportion of the family home may be held on trust for the Father’s estate, and as such the Mother would likely be entitled to a proportion of any capital gain thereof.
The application of these presumptions is certainly not without criticism.6 In the words of Lord Upjohn, ‘in reality, the so-called presumption of resulting trust is no more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution’7 (as is the case here). A majority of the Ontario Court of Appeal said the proper approach is to first evaluate the evidence of the transferor’s intention and only then, ‘if the intention of the late father remained unclear after this evaluation, then the court should have resorted to an analysis of the application of the presumptions of advancement or resulting trust.’8 Thus the Courts have recognised that these presumptions can be used as a way of breaking the tie in cases such as ours, but that they are not to be a substitute for evidence of the true intention of the transferor.
From Resulting Trust to Gift; Advancement
Having established that the presumption of resulting trust applies, the next step is to determine whether it is displaced. As we have assumed, there is insufficient evidence of the Father’s intention to rebut the presumption. The question is therefore, does the presumption of advancement apply, and, if so, does it displace the presumption of resulting trust? The case law seems to suggest that the answer to the second question is ‘yes.’ To put it in the words of Deane and Gummow JJ in Calverly: ‘[t]he presumption of advancement is perhaps not strictly a presumption at all. Rather, the position is that there are certain relationships from which equity infers that any benefit provided for one party at the cost of the other has been provided for by way of ‘advancement.’ These certain relationships include transfers from husband to wife and parent to child, but most likely exclude transfers between de facto partners (Calverly at 260 per Mason and Brennan JJ) and to step-children (see Re Matthews [1993] 2 NZLR 91 at 94 per Ellis J). The application of the presumption of advancement to our hypothetical situation has its difficulties. On the face of it a transfer from a father to his daughter appears to trigger the presumption. But, when we look at all of the circumstances this would require equity inferring that a father would prioritise the interests of his daughter and son-in-law over the interests of his wife (and later widow). If the scenario were to be changed from a transfer to a married couple to a transfer to a de facto couple the situation may be further obscured.
The Significance of a Gift and Advancement
There is a wealth of Family Court authority regarding the treatment of funds once it is determined whether they are gifts or loans. Having said this, in the absence of evidence that it is a loan, the Court will draw certain inferences regarding whether it is a gift, and if so, the intention of the donor and what type of gift it is. (The cases of Poulos v Svoboda (2005) 33 Fam LR 458, Gosper and Kessey illustrate this; see also In the Marriage of Rainbird (1977) 3 Fam LR 11,368; In the Marriage of Matthew (1980) 6 Fam LR 142; W and W [1980] FLC 90-872; In the Marriage of Underwood (1981) 8 Fam LR 152; and In the Marriage of Freeman (1979) 5 Fam LN 16. 23) One important principle arising from these cases is that:
- if the transfer of the property is from a parent (Or in fact any relative (see Poulos at [62]; Kessey at p160).; and
- if there is insufficient evidence to characterise the transfer as a loan or any type of commercial transfer;
then the transfer can be treated as a financial contribution made directly to the acquisition, conservation and improvement of property by the spouse relative. (See Gosper at p160; Poulos at [61]). What does this mean? To put it in terms of our example, because it was the Wife’s father who made the transfer, the Court would treat it as a contribution to the asset pool from the Wife herself, because in the words of Fogarty J, the:
‘gift was made only because of that relationship and in reality as a means of benefiting that relative in that marriage. It was made because she was a daughter of that family…’ (Gosper at p 610, quoting W at 75,527.)
Even though the Court in these cases does not specifically mention it, this appears to be an application of the presumption of advancement. But applying these principles to our situation has problems. In Poulos, the Court found that the transfer in question was in fact a loan. In Kessey the advance was the building of an extension onto the matrimonial home, clearly not a loan. In Gosper it appears implicit that the advance in question (a transfer of real property from the wife’s parents) was a gift.
These authorities do not seem to consider the issue of resulting trust at all. Further, our example is distinguished from these authorities as we lack evidence and therefore must rely on one of the equitable presumptions. Perhaps the most that we can glean from these authorities then is that if the transfer is to be characterised as a gift, then it can be seen as a contribution from the wife; but it doesn’t necessarily settle the fundamental question before us. Nevertheless these authorities still have some significance for our example. It follows that if the Court finds that the presumption of advancement applies, displacing the presumption of resulting trust, then the Wife may find comfort in this line of Family Court authority because it treats gifts from one side of the family as contributions from that party. (see again Af Petersens v Af Petersens (1981) FLC 91–095 and Biltoft v Biltoft (1995) FLC 92–614 ). The Husband would not get the full benefit of the gift in the asset pool before division, and the Wife’s side of the family would get credit for the transfer, even though the funds would not be paid back from the asset pool before division.
But again, this is not a simple exercise. Factors such as whether the Court found that the Father intended to give the money to just the Wife or the Husband and the Wife, as well as any s75(2) which act after contributions are taken into account, could act to diminish the Wife’s (and by extension, her family’s) share of the property.
Conclusion
In the absence of clear documentation, Courts can use equitable presumptions to determine the nature of money transferred within families. By themselves, these ‘standardised inferences’ (as Murphy J called them in Calverly), while allowing the Family Court to make findings of fact where there might otherwise be a vacuum, have severe limitations. They are best used as a supplement in conjunction with evidence of the transferor’s intention. It is important, therefore that wherever possible, family transfers are formalised to protect the parties to a transaction from future uncertainty in the wake of a relationship breakdown.
Marc Testart, Barrister
1And its new mirrors in Part VIII AB which relate to same sex and de facto couples. 2See Af Petersens v Af Petersens (1981) FLC 91–095 and Biltoft v Biltoft (1995) FLC 92–614 3Sometimes there may be an argument that there is an express or constructive trust, but for simplicity we will limit our discussion to resulting trusts. 4Here the burden of proof generally falls on the party seeking to assert the particular fact. See generally CR Williams 'Burdens and Standards in Civil Litigation' 25(2) SydLR 165. 5See especiallyCalverlyat 246 per Gibbs CJ and at 257 per Mason and Brennan JJ and Gibbs CJ in Nelson 602. Of course this presumption can be rebutted by evidence of a contrary intention or, arguably, by the presumption of advancement (see below). 6See for example McHugh J in Nelson at 602, Murphy in Calverly at 264. 7Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 313.
8Saylor v Madsen Estate (2005) 261 DLR (4th) 597 at [32].
MyLearnedFriends 
Posted on June 24, 2011
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