Whilst it is an easy conversation to ask loved ones including parents for money to buy a home or do renovations, little thought goes into the harder scenario on contemplating how you go about ensuring that those funds are repaid. If you loan monies to your children, will you get your money back? This creates difficulty, especially for the older generation who may be relying on those funds to retire comfortably.
It is becoming common for us to refer to the bank of Mum and Dad, which seemingly has funds that are available to compensate for the prospect of not being able to get into the property market due to the rising cost of living causing an inability to save for a deposit on a home.
If we assume that possibly the asset of the house and the liability of the loan come under the examination of the Family Court in the future, it is highly likely that the asset involved will be held jointly by the parties, but it is quite probable that the loan will not be considered a joint liability taking into account the other determining factors including which of the parties parents loaned the funds originally.
There is a presumption that when parents give their children money it is exactly that…… a gift. However, if it is not intended to be a gift, the onus is then on the person who loaned the monies to prove otherwise.
It is important that all parties involved seek independent legal advice. This then establishes intention relating to the funds that are advanced and subsequently borrowed. There are avenues of safeguards, including registering the loan with the State Titles Office and, more significantly a carefully drafted loan agreement that details the amount, terms of loans, any interest applicable, for example, but most importantly, when it is to be repaid.
Please seek professional legal help from us. We have assisted many of our clients with this scenario and everyone and their circumstances are unique. We are here to listen to you and advise you professionally.