Do financial contributions towards property give you a legal interest in that property?

No matter how serious your relationship (whether marriage or de facto), you may not automatically be entitled to an interest in your partner’s property.

It is common for both partners to contribute in one way or another to the household including any mortgage.  The question is whether or not this contribution allows you a recognisable legal interest in any property.   This is a contentious issue and one that was discussed in the case of Scanlon v McLeay.

In this case, the Applicant sought equitable relief for her contributions towards the property of her former partner (the Respondent).  These contributions comprised an amount of $49,000 which was used towards the deposit for the purchase of that property and other ‘general contributions’ including payments totalling $86,127.99 to the Respondent’s mortgage account (amongst other payments).

Equitable relief can be afforded by way of a resulting trust or constructive trust in the property so that the claimant has a recognised legal interest in that property. Courts have been prepared to find such a resulting trust exists where a party makes a voluntary contribution towards the purchase of property and that property is conveyed into the name of another party. The trust that results is established in favour of both parties in shares proportionate to each party’s contributions.

However, this will not always be the result. It may be the case that the Court finds that a ‘gift’ was intended by virtue of the relationship between the parties.  The Respondent pressed for this finding in Scanlon v McLeay and claimed that the contribution of the $49,000 was a gift by the Applicant.  Ultimately however, the Court found there was insufficient proof that a gift was intended and rejected this argument.

Accordingly, in Scanlon v McLeay the court held that the Applicant was entitled to an interest in the property by way of a resulting trust to the value of $49,000. However, the court’s finding with respect to the ‘general contributions’ (which were far more substantial) was quite the opposite.

The Court relied on earlier case law in finding that these contributions were made purely for securing a release of mortgage over the property and not towards the purchase price. The Court therefore held that no resulting trust arose with respect to such contributions.  Furthermore, the Court was unable to find any other remedial constructive trust arose since the Applicant (and her children) had been living in the property and the Court considered this ‘more than adequately compensated’ any payments made to the Respondent.

In summary, irrespective of the fact that a person has made payments or contributions to another party’s purchase or mortgage of property, this does not automatically give rise to a recognisable legal right in that property.  It needs to be borne in mind that in Queensland, it is not possible to record an interest in property by way of caveat without a valid equitable interest in that property. This decision has equal relevance to any family member contributing to the purchase of property or mortgage repayments.

Too often we see instances of family members making financial contributions towards the purchase or loan repayments on property without properly documenting the basis upon which those payments are made. The classic example we see is contributions by parents towards a deposit on the acquisition of a home which is generally understood to be a loan but is usually not documented. The decision in Scanlon v McLeay highlights that upon breakdown of any relationship, failure to properly document any financial contribution to property may leave the contributing party with little or no legal recourse to pursue return of funds.

What you need to know:

• At the time of purchasing property, ensure the transfers are drafted in such a way that correctly records the ownership of the property or their respective shares.
• If you are contributing a significant amount towards the purchase of property or ongoing mortgage payments which you expect to be repaid, we strongly recommend that this is documented to adequately protect your interests (such as by way of mortgage).

If you find yourself in this (or a similar) situation, please do not hesitate to contact the our Property team who will be more than happy to assist in ensuring your interest in a property is correctly recorded.

This article was written by Candice Etherton, Lawyer with contribution from Cathy Russo, Principal Lawyer – Property and Construction.