Loans from Parents or Grandparents – Will They Get Their Money Back?

20/01/2020

In Australia home ownership is becoming more difficult to achieve as property prices rise and banks impose more onerous lending criteria. 

It is becoming common for parents or grandparents to assist their adult child by providing money to help them and their spouse or partner to buy a home and to assist the payment of school fees.  Often the property/home is purchased in the names of both the child and their spouse or partner or by one.  At the time the money is provided, it is thought that all will be well and that promises to repay will be honored and that the marriage will succeed.

Is the Money Loaned or is it Gifted? 

If the money is provided as a loan then it must (at some time) be repaid. If the money is paid as a gift does not have to be repaid.

In either case the money provided will be regarded by the Court as a contribution made on behalf of one party to the marriage.

However the outcome can be very different as when the loan is a liability and as such reduces the net assets available for distribution.

Plan Ahead!

When things are going well there is a tendency not to think about what would happen if things fall apart. A gift cannot later become a loan!  The only way to provide certainty for the bad times is to plan ahead.

Watson & Watson advise that any payment of money to a child should be documented.  If it is intended that the money is to be repaid, then there should be a loan agreement and potentially a mortgage or caveat which may be registered on the title of the property that is purchased. 

Properly drafted loan documentation can eliminate doubt and provide a basis to get the money repaid.

If the moneys advanced by way of a “loan” is repayable “on demand” and no demand is made within the statute of limitation period (6 years from the date of the advance), then the claim to recover the loan is statute barred. 

It is critical that at the time of making the advance or entering the arrangement to loan money that you obtain advice is sought from experienced lawyers.

If the advance is by way of a gift of money this (and its amount) should be recorded in writing as this will:

(a)       Avoid any argument later that the money was never received or that only a smaller amount was given; and

(b)       Afford the parents the opportunity to commence proceedings in a Court to receive the loan money or they can join (intervene in) proceedings in the Family Court. 

If you wish to advance money to assist your children or grandchildren or you have received a gift of money or loan from your parents or grandparents and have any concerns as to how this will impact should the marriage/relationship end, we at Watson & Watson can advise you and prepare the appropriate documents or assist you in taking the appropriate action.  Please call Richard Watson Senior Family Law Solicitor or his Personal Assistant Shereen Da Gloria to discuss your concerns and pre-empt this difficult position.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.

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