House purchased by parent: loan or contribution?
Our client (Mike’s) mother was quite wealthy, having benefited from a change in council zoning which saw their farmland rezoned into residential land and increase by 10-fold in value.
During the parties 8-year relationship, she decided to assist her son to develop his estate portfolio by borrowing money against her own assets to purchase 2 investment properties.
There was no mortgage against the 2 properties, but the letter of credit used by Mike mother to purchase the properties remained unpaid.
The Wife claimed that the 2 properties were a gift and should be included in the asset pool without the debt as the Mother was wealthy. She said that she had no knowledge of the outstanding loan.
Mike and his mother claimed that it was unfair that the Mother should retain the outstanding loan she had used to purchase the properties and that both the loan and the properties should be included in the asset pool.
We joined the Mother to the proceedings and established that the letter of credit used by the Mother was used solely for the benefit of purchasing the properties and that this loan remained entirely unpaid.
We also showed evidence that from the time the properties had been purchased, our client and his wife had claimed the interest on the letter of credit loan as a tax deduction against their annual taxable income, and that the Wife had taken the information to the accountant to prepare the tax returns herself, and provided the accountant with the interest figures to be included on each of the returns, thereby establishing her knowledge of the loans.
Prior to the trial, and after reading the evidence, the Judge gave an indication that he was likely to regard the outstanding loan as a debt to be included in the asset pool if the matter proceeded to trial.
As the trial was delayed, we proposed that the matter be settled by arbitration. It was settled prior to the arbitration trial on the basis that the loan be include in the asset pool in its entirety.
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