With interest rate pressures and strong property prices the path to become a first home owner can be difficult to achieve without family support.
Parents are more than ever needed to financially help their child to acquire the first home.
But where their child has a partner, parents are likely to be looking for some certainty – either that in time they can have their advance returned to them; or if their child’s relationship encounters any problems, that their contribution is repayable in full. Family Law can create troubles for the bank of mum and dad.
Parents needing some ideas to achieve these outcomes can seek legal assistance. The advice given is for them as the lender.
How can I help my child financially to get a home?
If a relationship does not work out, despite all parties’ best efforts , how can a client diplomatically protect the contribution they made, which was really given with the intention that it would help their child (only)? What steps will protect the contribution the parent has made?
There are a number of options to consider however the most suitable will vary depending on the particular circumstances of the lender and the borrower.
Options to consider
- one possibility is for a parent to become a joint owner of the property with the adult child – this gives the parent an actual interest in the property, rather than a loan, but requires consideration of the tax implications
- The parties to the agreement execute a loan agreement or deed, and/or an acknowledgement of debt confirming the terms of the advance. This can include a provision that the property is security for repayment of the debt, but this needs to be clearly spelt out to be effective.
- The parties to the agreement enter into a formal deed between them. The deed may require repayment at a particular rate with interest, the deed may provide that the entitlement for the return of the funds is represented by the lender acquiring a specified percentage / interest in the subject property. There are other terms that can be explored.
- A Declaration of Express implied or resulting trust could be prepared, that the property is held on trust for the parent – like the first option this gives an interest in property, but may have tax implications.
- A statutory declaration by all parties acknowledging the true nature of the agreement and the quantum of the advance / contribution be executed. This is not a loan agreement.
- A caveat lodged on the title with consent, and provided there is a caveatable interest
- A request form can be lodged on the title with consent.
- A binding financial agreement between the adult child and their partner. This can be an agreement before or during the relationship.
All of the above can provide a measure of protection for the monies provided by the parent, and which may withstand family law proceedings in the event of a breakdown in the relationship of the child and partner
Management and recording of the agreement
- It is important to consider what records should be prepared and maintained of any agreement or arrangement between parents and child (and possibly partner).
- Parties to the agreement need to turn their minds to compliance and evidence of compliance with the terms of the agreement.
- It is also critical to review the agreement, and re-engage and if necessary update the agreement if circumstances or the terms of the agreement are varied from time to time.
For further information please contact one of our family law lawyers on 9635 7966 or through the various contact us options on our website www.matthewsfolbigg.com.au
This is not intended to be legal advice.
