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Patrick H.
Patrick H., Lawyer
Category: Australia Law
Satisfied Customers: 5421
Experience:  Dip Law LPAB - Sydney based lawyer
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My parents have loaned me and my (now estranged) wife

Customer Question

Hey Pearl,
JA: How can we be of help?
Customer: My parents have loaned me and my (now estranged) wife $13,000 to assist with LMI on the purchase of a house. They would like to file a lien on the house to recover the funds should we sell the house as part of the divorce proceedings - how is this accomplished. The parents live in the United States.
JA: OK. The Lawyer will need to help you with this. Have you consulted a lawyer yet?
Customer: I have one on retainer - you came up as a google search. I was trying to be cheap and quick.
JA: Is there anything else important you think the Lawyer should know?
Customer: The house is likely "under water" (worth less at sale than the current amount owed on the mortgage)
JA: I'm sending you to a secure page on JustAnswer so you can place the $5 fully refundable deposit now. While you're filling out that form, I'll tell the Lawyer about your situation and connect you two.
Submitted: 1 year ago.
Category: Australia Law
Expert:  Patrick H. replied 1 year ago.

Hello and thank you for your question.

If the loan to you and your estranged wife is documented and can clearly be demonstrated to be a loan not a gift then the loan will be repayable by you and your estranged wife, but unless the loan was expressed to be secured against the property there is no entitlement for them to lodge a caveat on the property (which I suspect is roughly the equivalent to the lien they are contemplating - the law relating to liens in Australia is quite different from that in the US so hence the terminology is different).

If the loan is not clearly a loan but rather the court forms the view it was actually a gift which is only now, on separation, being described as a loan, the courts will not order it be paid back, but in such a case will generally regard any such gift from a parent to a married couple, as being a financial contribution of the party whose parents contributed, so that the gift should at least benefit you to some extent as reflecting your contribution, and which therefore will potentially entitle you to a greater share of the asset pool upon a family law property settlement or judgment, (though whether it benefits you to the extent of the 'gift' only a fully briefed lawyer can advise on).

If there is no net equity in the house, the money is still repayable as a loan (just because the asset the loan was used to purchase proves to have no net worth, does not excuse the borrow from repaying their loan) and is still taken as a contribution on your part, if the court determines it a gift.

It is only if you and your estranged wife were to become bankrupt that the obligation to repay the loan would be reduced to what could be recovered out of your assets, and any shortfall would simply be unrecoverable.

I trust the above assists your understanding.