Family lending and relationship breakdowns

For many people, the prospect of purchasing a home in the current property market, with its escalating property values, seems unattainable without additional financial support.

It is not unusual then for parents to offer that financial support to their children and provide significant funds to assist with the deposit, purchase price, loan repayments or cover other shortfalls.

Many parents may have a belief that their loan will be repaid at a later time but are shocked to learn that this may not occur in the event of a breakdown of their child’s relationship with his or her partner at a later time.

In the family law sphere, the Court distinguishes between “loans” and “gifts” – the difference is critical. Only loans are repaid. Gifts are recognised as a contribution to the asset pool by the party whose family member provided the funds, and are not repaid.

If it is the intention of parents to lend their money and have it repaid once their child is financial stable then it is essential that the loan be formally recorded by way of a loan agreement. Consideration should also be given to having security for the advance against the property concerned. A loan agreement should identify repayment terms and be signed by all parties, including any partner of the person receiving the funds if relevant. It is important to demonstrate the advance is a genuine loan with a clear expectation of repayment.

Many parents fail to insist on such documentation and this can be to their detriment in the event of a relationship breakdown, especially if they are relying on those funds during their own retirement. Getting advice early is key.

At Wightons Lawyers, our family law practitioners can provide advice to parents about the expectation of the Courts and the steps required to protect their funds whilst supporting their child. We invite you to contact our office on 52 264 100 to make an appointment with our family law practitioners.

This article is general information only and is not legal advice or a substitution for such advice.