Many parents are open to financially assisting their child to purchase their first property, particularly in today’s competitive housing market. In Australia, it is legally presumed that advances of money provided from a parent to their child are a gift (and not a loan), but what are the consequences of choosing one over the other?
- Loaning the funds
It is important to consider the risks of providing the funds to your child, particularly when your child is married. This is a question that many family lawyers come across when the marriage has irrevocably broken down. How then can you retrieve the funds? If it was provided by way of a loan, the Family Court generally considers this as a liability of the marriage and is borne by both parties jointly – regardless of whether it was initially intended to both parties or only in your child’s name. Liabilities form part of the total property pool and naturally will decrease the net value when it comes down to distributions during property settlement. However, without solid evidence, the Family Court tends to be sceptical whether the funds were a loan.
- Evidencing a loan
At the time of providing financial assistance to your child, we would highly recommend that a loan agreement is formalised in writing and executed by all parties. Here, the loan amount will be specified as well as the loan amount and how and when the money should be repaid. This will ensure that the funds can be retrieved. If you require any assistance in drafting the loan agreement, please do not hesitate to reach out to Freedman & Gopalan Solicitors, and we will be happy to assist you.
So, what happens then if there was no such evidence supporting the claim of the loan?
- Gifting the funds
Unfortunately, the funds provided will then be considered as a gift, and you could face the risk of your child’s partner seeking a share of that matrimonial asset. This is why we would highly recommend for you to get an agreement documented and evidence the funds by way of a loan.
If you have any further concerns, please do not hesitate to contact our office on 02 8917 8700.