The Bank of Mum and Dad: What You Need to Know

With property prices currently at an all-time high, it is increasingly common for young married or de facto couples to rely on financial assistance from their parents when purchasing a home together. The Bank of Mum and Dad has never had more business!

But beware. Before you give or accept a monetary gift or loan from a family member, there are a few factors you should first consider.

If it’s a gift – who are you giving it to?

The general rule is that where a parent gifts their child money, it is presumed to be a gift to their child only, and not the child’s partner or spouse, unless there is evidence to the contrary. That means that if you want the gift to be for the benefit of both your child and their partner, you must make this intention clear.

So tip #1: Think about who you want the gift to belong to and make your intention clear.

If it’s a loan – who is it to and who has to repay it?

When a parent advances money to their child, the law presumes it is a gift unless they say otherwise. To show the advance is a loan, a written Loan Agreement should be signed by all parties. The Loan Agreement should include the amount of the loan, who it is being loaned to and how it will be repaid.

Tip #2: If the intention is to loan money, make sure you enter into a written Loan Agreement. This is the best way to ensure the money advanced will be treated as a loan by the law, and not a gift.

What happens if the relationship breaks down?

If it’s a gift, the money will be absorbed into the property pool to be divided between the separating parties. If you give money to your child only, they can claim the gift as an extra contribution they made to the assets of the relationship – this may increase the amount they are entitled to in a property settlement. If the gift was intended for both partners, it will be treated as an equal contribution.

If it’s a loan, it will be repaid in accordance with the written Loan Agreement. If the loan was to your child only, then your child will need to repay it. If the loan was intended for both parties, they will both need to repay it.

If you have more questions, contact us today to discuss these important issues.

Note: This is general information advice only and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters, please contact us on 03 9620 0088 or email [email protected]

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