An unfortunate reality in litigation is that lawsuits often pit one family member against another.
The nature of the relationship between the parties can then add to the emotional toll of the court process and the financial strain which litigation places on the family. In order to avoid intra-family litigation, you should understand the legal rules which apply to transfers of money and property between family members.
Ordinarily, when person A makes a payment to person B, person B will provide some good or service in exchange for the payment. This creates a contract and any dispute between A and B will be decided by the Court by interpreting the contract (as detailed in our last article). However, if B does not give anything of value to A, the law will ordinarily consider that B is obligated to return A’s payment. This is called the presumption of resulting trust and means that B is holding the money for A’s benefit, and cannot use it for his or her own purposes. The presumption of resulting trust also applies to transfers of property. For example, you might purchase a car but allow your friend to be registered as the owner. The law will nonetheless presume that you are the owner if your friend has not provided you with anything of value in exchange for the car.
This is only a presumption. Your friend may still be able to prove, to the satisfaction of the Court, that you gave the car to him. Nonetheless, the presumption is important because it may not be clear from the evidence what your intention was. The Court will then rely on the presumption and order your friend to return the car to you.
There is an exception to the presumption however, in some circumstances when the payment or transfer of property is made between family members. Traditionally, the law presumed that if a father transferred property to his children, or if a husband transferred property to his wife, this was a gift and so the property did not need to be returned (unless the father/husband could prove that there was an agreement that it would be returned). The reason for this was that husbands and fathers, as the breadwinners in the family, were considered morally responsible for supporting their wives and children. This presumption is called the presumption of advancement.
In the modern era, the law has moved away from reasoning based on traditional gender roles. The current presumption is that, if a parent (either the father or the mother) transfers property to a child who is younger than 18, this is a gift. If the child is an adult however, the presumption of resulting trust applies and the property must be returned, unless there is evidence showing that it was given. Likewise, a transfer of property from a wife to a husband is more likely to be considered a gift.
If you are considering entering into a financial transaction with a family member, the best course of action is to have a clearly documented agreement that explains the purpose for the payment and whether it is expected to be repaid. You should consult with a lawyer to ensure that your interests are protected.
Similarly, if a dispute has arisen between another family member and yourself regarding a payment made or property purchased, please feel free to contact us for more information about how you can recover, or protect, your property.
Walker Law's Andrew Ostrom also contributed to this article.