With the price of real estate these days, the bank of Mum and Dad is a serious provider of finances and deposits at the time of purchasing a property. Sean Cahill has been a solicitor for over 30 years and an accredited family law specialist for 20 years. Sean says that if a transaction is properly documented and records are kept, if there is a dispute in a family law case, the level of documentation will determine how the court deals with any payment. Take these scenarios;
1.Mum and dad provide a loan reflected in a loan agreement supported by a registered mortgage lodged against the title to property. In those circumstances, Mum and dad have the same rights at law as a bank with a registered mortgage. If the funds are not repaid at the time of separation, mum and dad call on the loan and it is repaid (if necessary) at the time of the sale of the property. Mum and dad get all of their money in this circumstance;
2. Mum and dad provide a loan reflected in a loan agreement that has a charging clause allowing Mum and Dad to place a Caveat against the title of the property as evidence of the loan. In this circumstance, mum and dad have the level of security of a secured creditor and the loan is repaid at the time of any refinance or sale;
3. mum and dad provide funds with a verbal loan agreement and records kept in an exercise book or similar document about the dates on which funds had been advanced. If the verbal loan agreement is disputed, there is a very real risk to mum and dad that at trial, the judge will make a finding there is no loan agreement. Depending on the level of records confirming the funds having been advanced, the court is likely to characterise those payments as a contribution on behalf of the spouse who is the child of Mum and dad. In those circumstances, mum and dad don’t get their money back from a court order and they have to hope that there is enough left over from their child for the funds to be repaid;
4. Mum and dad provide funds with a family meeting and there are disputed versions of whether the funds were characterised as a gift or a loan (and sometimes whether the funds were paid at all can also be in dispute). If mum and dad are not able to provide banking records of funds that were transferred, the court may make no finding about a gift or contribution if the transactions are disputed.
So, if you are a parent or a grandparent and you are being asked to provide a loan or a gift at the time of the purchase of a family home between a child and their spouse, which version of mum and dad would you prefer to be?
Prevention is better than cure and the time for these documents to be considered, discussed and prepared is at the time of the transaction when a home is being purchased. If this applies to you or someone you know, have them contact one of our family law solicitors for advice before any money changes hands.
This article was published on 09/06/23 and the information is valid only to the date of publishing. This article should be considered merely general and non-specific on the subject matter and is not and should not be considered or relied on as legal, advice. Meehans Solicitors is not responsible in the event this information is relied upon by the reader in the absence of specific legal advice.