by Jackie Stepto

In recent times is it very common for Australian parents to assist their adult children financially when purchasing property.  Many parents are entering into arrangements with their children without doing their homework!

Have you made it CLEAR whether your signature and/or cash injection is a gift or an investment to be returned?

A recent case study outlines the financial consequences of what is known as “presumption of advancement” when purchasing a property with or for your child when Bankruptcy intervenes.

What is Presumption of Advancement?

When one purchases a property in the name of another, the value of the equity in the property usually asserts a presumption of “resulting trust”, meaning that the recipient of the property is holding the equity on trust for the benefit of the purchaser.

However, if the parties involved are in an advancement relationship the equity of the property is presumed to be a gift known as a “presumption of advancement “ and the recipient is intended to be the legal owner rather than a trustee.

What are Advancement Relationships?

In Australia, the most common advancement relationships apply between the following:

  • Husband and Wife; and
  • Parent and Child.

CASE STUDY

Introduction and Facts

A Mother and Son sign a contract to purchase a property from a third party as joint tenants. Upon execution of the contract the Mother pays the full ten percent (10%) deposit to secure the property. In the meantime, the Mother and Son submit their application for a mortgage with a financier. At settlement, two thirds of the settlement funds are provided by the financier and the remaining balance is paid by the Mother.

Presumably unknown to the Mother, there is a Creditor’s Petition filed against the Son and one (1) month after settlement the Son is declared a bankrupt by a Sequestration Order. The Trustee begins investigations into the financial affairs of the Son (the now Bankrupt) who at the time maintained the mortgage repayments. The property was sold six (6) months after purchase and five (5) months into the Bankruptcy of the Son. After the financier and various realisation costs were paid the balance of equity funds were deposited into a Trust account to be disputed by the Trustee in Bankruptcy and the Mother regarding the Trustee’s stance of “Presumption of Advancement”.

Evidence Supporting Presumption of Advancement

  • The property was purchased as undivided joint tenants. With the intervention of the Bankruptcy Act, all the Bankrupt’s divisible property vests with the Trustee, so the holding in this property reverts to tenants in common in equal shares. On that basis the Bankrupt’s share now vests with the Trustee;
  • There was no agreement and/or contract between the Mother and Son suggesting that the undivided share of the Property was held in Trust for the Mother;
  • The mortgage was signed by both the Mother and Son, with no evidence suggesting the property was to be held on Trust; and
  • The deposit and settlement funds that were paid by the Mother had no supporting evidence or written agreement that the Son was required to repay half the funds.

In Summary

A Presumption of Advancement applies in regards to any purchase of property made in the name of a child or spouse by the purchaser.

This term in the past has had consequential applications in both family and estate law and now, with parents assisting their children more often, is creeping into Bankruptcy. It is therefore, detrimental to your position, that unless legal advice is sought before you enter into an arrangement to purchase property that the Presumption of Advancement can affect the determination and division of assets as between parents and children or between spouses.

Veritas Advisory has been successful in recovering available equity for the benefit of creditors in cases when the presumption of advancement was applied. Creditors should consider this element/recovery technique when considering debt recovery.

Recent Case

  • Aravanis (Trustee) in the matter of Gillespie (Bankrupt) v Gillespie [2013] QCA 99
  • Nelson v Nelson [1995] HCA 25
  • Calverley v Green [1984] HCA 81

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