Bank of Mum and Dad: Is it a Gift or a Loan?

30 Jul 2025

Children now, more than ever before, rely on their parents for financial support when they buy their first home. However, the line between a gift and a loan is often unclear. Without any supporting documentation in place, this well-intentioned support can quickly lead to disputes, strained relationships, and expensive legal battles. Uncertainty around when or how the money will be repaid (if at all) only adds to the risk.

Firstly, it is important to understand the difference between a gift and a loan in this context:

• Gift: Money provided by someone with no expectation or intention that it will be repaid by the recipient. The spouse/partner will also benefit from this gift.
• Loan: Money provided with the understanding that it will be repaid. The spouse/partner will also be liable for the loan.

Presumption of Advancement

The legal position presumes that when parents give money to their children, the funds are a gift – this is known as the ‘presumption of advancement’.

However, this can be challenged if there is evidence showing that the money was not intended as a gift. The key factor to consider is what the parents’ intentions were when they gave the money. The most reliable way to confirm that intention is to record it in a binding legal document.

In the case of Narayan v Narayan, parents lent $100,000 to their son and his spouse for a home purchase. The son and his parents had a document which was considered to have legal effect and hence the loan was payable. Similarly, in KBM v RM, parents advanced over $100,000 to renovate their child’s home during his marriage. The parents documented the transfers, and the court accepted this record as sufficient evidence of the advances as loans.

In Zhou v Yu both sets of parents provided funds throughout a couple’s relationship. Although loan documents appeared after separation, the court ruled the money was gifted, with no original intention for loans.

More and more, we are seeing court cases involving this issue. Court cases can be costly, lengthy, and tiresome. However, taking legal steps at the outset can reduce the risks of such arguments, costs and stress.

Steps you can take

As parents, if you plan to advance money to your child and/or their partner, here’s what you can do to ensure your money is protected:

• Seek independent legal advice;
• Ensure there are clear supporting documents - loan agreement or deed of acknowledgement of debt prepared by lawyers.

Alternatively, if you and your partner are receiving money from your parents, you can protect these funds by entering into a contracting-out agreement with your partner, alongside a loan agreement. This helps ensure your parents’ money is safeguarded in the event of a separation.

For your best protection, if you plan to provide money to your child, contact our Relationship and Family Law Team to best safeguard your interests.