It’s a story we hear all too often: a parent gives their adult child a financial gift – perhaps to help them buy a home or start a business – only to see that gift caught up in a divorce settlement years later. While gifting during divorce to a child might seem like a kind and straightforward act, doing so without the right legal structure can have serious, unintended consequences.
At a recent presentation, MST Lawyers’ Principal and Family Law specialist Carmel Morrison unpacked the complexities of financial gifting during divorce. With over 38 years’ experience in family law and a focus on complex parenting and financial matters, Carmel offered clear, practical guidance on how to protect both your generosity and your child’s financial future.
Key Takeaways
- Gifting money to adult children can become risky during divorce if not legally structured.
- Undocumented gifts may be treated as marital assets and divided with an ex-spouse.
- Use a formal loan agreement to clarify repayment expectations and protect the funds.
- Trust structures—such as discretionary or irrevocable trusts—can offer added protection.
- Legal advice is essential before gifting significant sums to ensure your intentions are protected.
- Recent family law reforms in Australia place greater emphasis on fairness, efficiency, and protection of vulnerable parties.
Gifting Money to Children During Divorce
When an adult child separates or divorces, the assets in the relationship—including gifts received from parents—can become part of the property pool to be divided. Unless the gift is structured properly, the child’s former partner may be entitled to a share of those funds.
So, how can parents ensure that their support doesn’t end up in the wrong hands?
1. Structure the Gift as a Loan, Not an Outright Gift
If money is handed over without any formal agreement, it may be viewed by the Court as a non-repayable gift—and that can be included in the asset pool of the divorcing couple. This means that the money could be split, with part going to the ex-partner.
Instead, Carmel recommends treating the gift as a loan from the outset.
“If there’s no paperwork, the court will often assume it was a gift,” Carmel explained. “Documentation makes all the difference.”
2. Create a Written Loan Agreement
A handshake or a family understanding isn’t enough. To be recognised legally, the loan should be backed by a formal Loan Agreement. This should outline:
The amount loaned
Repayment terms (including timing and interest, if applicable)
Any conditions or security attached to the loan
What happens if repayments are not made
A written agreement makes it clear that there’s an expectation of repayment and significantly improves the chances of the money being excluded from the matrimonial asset pool.
3. Use Trusts Where Appropriate
Another powerful strategy is to place funds in a trust, rather than transferring them outright. Trusts can provide long-term protection and control over how the money is accessed and used.
Carmel outlined two key types of trusts:
Discretionary Trusts
These give the trustee flexibility in how and when funds are distributed to beneficiaries. They offer protection by keeping assets outside the direct ownership of the child.Irrevocable Trusts
These are more rigid but offer stronger protections, as the terms cannot be changed once set.
Both trust types can limit a former partner’s ability to claim the funds as part of a divorce settlement.
4. Always Seek Legal Advice First
Family dynamics, financial goals, and legal risks all intersect in this area of law. It’s not something to approach casually. That’s why early legal advice is crucial.
“This is one of the most complex and high-stakes areas of family law,” Carmel said. “Don’t wait until separation occurs. Get legal advice before the money changes hands.”
Final Thoughts
Gifting to your children is a beautiful gesture, but when relationships break down, that gift can come under scrutiny. Whether it’s a home deposit, business support, or other large sum, parents should take proactive steps to protect their generosity.
At MST Lawyers, our Family Law team regularly advises parents and families on how to structure gifts, loans, and trusts to minimise risk. We also help clients navigate Consent Orders, Binding Financial Agreements, and complex property settlements.
If you’re considering gifting money to a child—or you’re concerned about protecting family wealth—speak to us before you sign anything or transfer funds. It could make all the difference in the long run.
Contact MST Lawyers to get legal advice on family gifts and find out how we can help you plan smarter, protect better, and give with confidence.
(03) 8540 0200
