We frequently see informal arrangements in families whereby the children will accept a transfer of property to assist their elderly parents who may be facing financial hardship.
The case of Davis & Peterson (2023) FLC 94-13 concerned a couple who commenced a de facto relationship in March 1999 and subsequently separated in 2010.
Background
During the relationship, the de facto husband’s parents transferred two properties which they owned in NSW to the couple (one being an investment property and the other their holiday home) when they faced financial difficulties.
The elderly parents owned the properties from 2001 to 2003. The transfer was made in 2008 and involved the de facto couple refinancing the loans for both properties into their names; however the elderly parents continued to meet all repayments and outgoings and to treat the properties as they had prior to the transfer.
It was asserted that there was an agreement that the de facto couple would transfer the properties back into the names of the elderly parents upon request.
When the de facto couple separated, there was a dispute as to whether the properties were held by them on trust for the de facto husband’s parents, or whether it fell into the matrimonial asset pool and was available for division between them.
The Court’s findings
Proceedings were commenced in 2016, and the elderly parents were joined as respondents to the proceedings. They sought declarations that the properties were held on trust for them, and their son (the de facto husband) supported their position in the litigation. The de facto wife opposed this.
The trial judge refused to make the declarations sought and found that they had not satisfied the Court that there was a trust arrangement in place. He found the reliability of the evidence of the elderly couple to be in question, and that they had not discharged the onus of proving a trust arrangement was in place. It was further concluded that, even if a trust was proved, the elderly couple were barred from their claim in equity due to their own unconscionability and their failure to have “clean hands” as they were complicit in false representations being made in the relevant loan application and to the Australian Taxation Office.
On appeal it was argued that the trial judge had erred in the finding that there was no trust arrangement in place. The elderly parents (now appellants) argued as part of their appeal that the following factors were relevant:
- there was no contract to purchase, no discussion of a purchase price or payment of moneys between the sum borrowed and the value of the properties
- the elderly parents (and not the de facto couple) paid the stamp duty on the transfer
- the elderly parents continued to receive the rent, and pay all outgoings for the properties, and continued to use the properties as they had prior to the transfer (noting that one was a holiday house), and
- the behaviour of the de facto couple was consistent with them being trustees.
On Appeal the Court found “The common intention inferred from the conduct of the parties evidenced by the incontrovertible facts, irrespective of the credibility of the parties, led inescapably to only one conclusion, namely that the properties were held by the first and second respondents on trust for the appellants.” The appeal was allowed.
Key takeaway
This case highlights the importance of formally documenting trust arrangements, even in families where there is typically a high level of trust between all parties.
If you have any questions in relation to this article, please don’t hesitate to contact a member of our Family & Relationship Law team.
Want Family & Relationship Law updates delivered straight to your inbox? Click here to subscribe.
