Case of the Week | How to Determine Whether a Parent's Contribution Towards a Child's Home Purchase is a Gift or a Loan?

         Lawyer Ye Xiaoqian, Deputy Director of the Firm, Senior Partner, and Director of the Women Lawyers' Committee. She holds a Master's degree in Economic Law from China University of Political Science and Law and specializes in construction engineering, real estate, commercial disputes, and criminal defense. With over 11 years of experience, she has handled hundreds of civil, commercial, construction engineering, real estate, and commercial cases, possessing extensive practical experience. Her work is rigorous and responsible, earning her high praise from clients.

Contact Information: Mobile: 15205811517 Email: yexiaoqian@htxls.com

How to determine whether funds from parents for their child's home purchase constitute a gift or a loan?

Case Summary

  Wu and Zhang were introduced and registered their marriage in 2016. Zhang's parents, Zhang Moumou and Yang Moumou, have been in business for many years and have substantial family assets. After their daughter and son-in-law's marriage, they gifted them a commercial property. In 2018, Wu and Zhang had a child. Without Wu's consent, the child's surname was Zhang. After the child's birth, the conflict between Zhang, her parents, and Wu deepened, eventually leading to the breakdown of their marriage. In January 2020, Zhang filed for divorce, and her parents filed a lawsuit against Zhang and Wu, claiming nearly 4 million yuan in repayment of the funds used to purchase the property under a private loan agreement. Wu, as the defendant, retained Lawyer Ye Xiaoqian from Zhejiang Hangtianxin Law Firm as her agent.

Legal Strategy

The key issue in this case is whether the relationship between the parties constitutes a loan or a gift. Zhang's parents never asked Wu and Zhang for an IOU, but Wu also has no direct evidence to prove that Zhang's parents intended to make a gift. In the absence of direct evidence, indirect evidence will be gathered to corroborate the rationality of the gift in this case.

1. Through investigation and evidence collection, it was found that Zhang's parents have a wealthy family and own multiple properties, including a ten-million-yuan mansion and a luxury car for Zhang before the marriage. The funds involved in this case were used to purchase the commercial property as a gift from the plaintiffs to improve the living conditions of their daughter and son-in-law, which is reasonable and logical, and the rental income belongs to Zhang. On the contrary, Zhang and Wu are ordinary office workers without savings, and it is too risky for them to borrow nearly four million yuan to invest in commercial property, and they do not have the repayment ability.

2. The two parties never reached a loan agreement, and there is no evidence of debt collection or repayment, which is inconsistent with the norm in private loan cases. The location, size, and price of the commercial property were all decided by Zhang's parents, and the funds in this case were not directly delivered to the borrower as in typical private loan cases, but were directly transferred by Zhang's parents to the property company.

3. The timing of this lawsuit coincides with Zhang's divorce lawsuit against Wu, suggesting that Zhang's parents are using this loan lawsuit to indirectly help Zhang obtain a larger share of the marital property in the divorce proceedings.

Case Result

  The Hangzhou Municipal People's Court of Gongshu District's first-instance judgment dismissed Zhang's parents' claims, freeing Wu from the unwarranted debt. After the first-instance judgment, both Zhang and her parents appealed, and the Hangzhou Intermediate People's Court's second-instance judgment dismissed the appeal and upheld the original judgment.

The first-instance court found that in such a close parent-child relationship, if neither party can prove whether it is a loan or a gift, the principle of “He who alleges must prove” should be strictly followed. On the one hand, the unilateral nature of the gift means that the child only needs to passively and negatively accept the gifted property without having to take any other positive actions. Therefore, a gift relationship is more difficult to prove. Loans usually involve written evidence, with the borrower issuing an IOU as the basis for the lender's request for repayment. Therefore, parents claiming a loan relationship should find and retain evidence more easily than children claiming a gift. On the other hand, from the perspective of the realities of China, the probability of parents voluntarily remitting funds to purchase property for their children out of affection is much higher than the probability of parents remitting funds as a loan to their children to purchase property . In this case, combining the living conditions of both parties and the amount of funds involved, the plaintiffs voluntarily remitting funds for the defendants to purchase the commercial property is more in line with normal interpersonal interactions. Therefore, requiring the parents, who are claiming a loan—a less probable event—to bear the burden of proof is consistent with common life experience. If the parents' evidence regarding the loan is insufficient, they should bear the consequences of failure to produce evidence.

The second-instance court held that the determination of the nature of the transfer of property from parents to their children and spouses not only involves the interests of their children, but also the interests of their spouses. In the event of a breakdown in the children's marriage, a determination cannot be made solely based on the children's own acknowledgement of the nature of the funds . The burden of proof for determining whether the funds can be considered a loan should be reasonably allocated, and a comprehensive judgment and determination should be made on a case-by-case basis based on the relevant evidence, the context of the fund transfer, and the marriage and divorce situation of Zhang and Wu. Secondly, the funds were not directly delivered, but were delivered in the form of purchasing commercial property. Therefore, Zhang's parents should bear the burden of proof for their claim that there was a loan agreement between the parties for the purchase of the commercial property by Zhang and Wu. Currently, with respect to the funds involved, Zhang's parents have failed to produce evidence proving a loan agreement between the parties, and they have failed to prove that the purchase of the commercial property was based on Zhang and Wu's requirements for the location, area, and price of the property, nor have they produced evidence of the loan term, interest rate, or other important matters related to the loan, and they should bear the adverse consequences of failing to produce evidence. Furthermore, from the time the funds were transferred to the time of the lawsuit, nearly three and a half years have passed, and there is no evidence that Zhang's parents have demanded repayment from Zhang and Wu under the guise of a loan, nor is there any evidence that Zhang and Wu have repaid any principal, interest, or requested an extension of the repayment period. The property in question was purchased several months after Zhang and Wu were married, and the dispute over the funds occurred several months after Zhang and Wu filed for divorce. Meanwhile, Zhang, as the daughter of Zhang Moumou and Yang Moumou, explicitly acknowledges that the funds involved are a loan, and after the first-instance judgment found Zhang not liable, Zhang appealed and requested to be held liable, which is also not consistent with the usual practices in private loan disputes. 。

Case Analysis

  In practice, there is often disagreement over whether the funds provided by parents for their children's home purchase are loans or gifts. In such situations, the nature of the legal relationship between the parties should be accurately determined based on the ascertained facts of the case.

The biggest difficulty in this case is that neither the plaintiff nor the defendant had direct evidence to prove whether the funds in question were a loan or a gift. According to Article 16 of the Supreme People's Court's "Several Provisions on the Application of Law in Handling Cases of Private Loans" (2020 Revision), although Mr. Wu could not produce direct evidence of a gift, lawyer Ye Xiaoqian, his agent, obtained a series of written materials from the relevant housing and vehicle management departments before the trial. She also presented detailed evidence of a series of objective facts that occurred before and after the marriage of both parties. This led the first and second instance judges to conclude that the case was a joint gift from one party's parents to the couple, a conclusion that better fits the objective facts of the case. Therefore, the plaintiff's claim was dismissed, and Mr. Wu was relieved of a debt of nearly 4 million yuan. The first and second instance courts, based on the rules of evidence, placed the burden of proof on the plaintiff, i.e., Mr. Zhang's parents, leading to a just judgment.

In this case, adult children should be self-reliant and grateful to their parents, but this does not exclude the reality and legality of receiving gifts from their parents. Accepting property from parents with a spouse also involves the rights and obligations of the spouse. If parents want to care for and help their children but do not want to provide gratuitous financial assistance, tolerating the children's dependence on their parents, and the children want to be independent but face temporary economic difficulties, the adult children and their spouse can issue an IOU or other written debt instrument when receiving property from the parents to clarify the nature of the funds for future handling. If parents give property to their adult children during a normal marriage, and then demand repayment from the children and their spouse under the guise of a loan when the marriage deteriorates, this violates good faith and does not conform to the reasonable expectations of the parties regarding the receipt of funds, and is not conducive to the stability of the marriage and family.