Lending money to your child? Did you know...
With the contemporary challenges faced for young people, with unaffordable housing prices, many parents find themselves in a position of assisting their child to purchase real estate. Often little consideration is given about the nature of the assistance and whether it is considered a gift or a loan.
So, what should do you need to know when lending money to your child purchasing real estate?
There is a difference between a gift and a loan
If financial assistance is provided to a child who is in or enters into a relationship and that child subsequently separates from his or her spouse, the nature and treatment of the financial assistance often becomes a point of contention for the purposes of a property settlement.
It is therefore important to properly document such financial assistance to ensure the parents’ true intention in providing financial assistance is given effect.
A gift will form part of the asset pool
Gifts received from parents before or during a relationship are considered indirect financial contributions for family law purposes and do not form part of the asset pool for distribution.
The primary characteristic is that there is no expectation that the money be repaid.
Although a gift will be considered a contribution on the part of the spouse on whose behalf it was made, the weight the Family Court may give to the gift in considering a property settlement is influenced by a number of factors and it is unlikely that the child on whose behalf the gift is made will receive a dollar for dollar adjustment to the value of the gift.
If parents wish to provide a gift to their child, it is prudent for a gift to be documented to ensure the gift can easily be attributed as a contribution by the parents’ child in the event of family law proceedings.
A loan will form part of the liabilities
Liabilities incurred during or prior to a relationship will be considered a liability of the relationship and will reduce the asset pool available for distribution in the event of separation.
How does the Family Court determine whether it is a loan or gift?
Factors that the Family Court will consider in determining whether a loan is a true liability of the relationship include:
- Whether the loan is documented and provides for repayment within a period of time;
- Whether the loan has previously been treated as an obligation to be fulfilled;
- Whether the loan is secured by way of mortgage or charge;
The likelihood that the debt will be enforced, including whether there is any conduct by the parties to the contrary.
If you would like assistance in protecting your interest in money provided by you to assist your child, contact one of our friendly staff at Bambrick Legal today