The Bank of Mum and Dad: What to consider when helping children buy property
The Bank of Mum And Dad: How to keep the good times rolling

The obstacles to homeownership in Australia have been well documented. Soaring prices over the last decade, and more recently, more stringent lending criteria, has seen more and more first home-owners turn to the bank of Mum and Dad for assistance when it comes to buying a home. As parents, we want what’s best for our children and more often than not parents will look to help their children however they can.

Purchasing property is no different. But did you know that the method you use to help your children can have significant implications down the track? This is especially true when you are helping your child and their partner. In the event that your child and partner split after living together, regardless of whether they have been married or not, determining what happens with the help provided by you as parents can become very tricky.

In this article, Freeman Family Law principal and accredited mediator Graeme Freeman explains the basics of securing your assistance for your child.

First things first…gift or loan?

Determining the structure of your assistance is the first crucial decision you must make as parents before providing any assistance. Are you providing money up front as a gift? That is, are you providing the money with no expectation that it will be paid back? Or, are you looking to provide assistance in the form of a loan? Deciding this – and documenting your decision – is crucial to safeguarding your contribution and protecting your child.

So, what are the pros and cons of providing a loan as opposed to a gift? The bottom line is that in the event that the benefactors of the gift split up, money that was gifted or contributed to the purchase of the property will not have much impact in terms of deciding who gets what. In plain-speaking terms, this means the family that provided the gift and their child are exposed to significant losses. The longer ago the gift was given, the less of an impact it will have when dividing the assets. A properly structured loan – even one which requires repayments as little as $1 a month – can be much better protection of the contributed funds for the family who provides the contribution.

Documenting your agreements

Whatever you do, it’s vital that you document your agreements accordingly. If the gift is for a couple getting married, a pre-nuptial agreement may be appropriate. If it is for a de-facto partnership, then a pre-cohabitation agreement may be more suitable. Whichever way you go, ensuring these agreements are drafted by a family law expert, such as our team at Freeman Family Law, will go a long way to ensuring the greatest possible protection of your child and your contribution.

In the event you are gifting monies to your child with no expectation of repayment, these agreements can help to ensure that should your child split with their partner, you will safeguard your contribution as much as possible. In the event you are advancing funds to your child in the form of a loan, ensuring the loan is properly drafted, documented and adhered to will be critical to securing your funds.

Purchasing property on behalf of your children

Another option for parents looking to help out their children is to purchase the property on their behalf, either by way of providing all related funds or by way of purchasing the property under a trust with the intention of transferring the property into the child’s name at a later date.

Both of these arrangements require their due diligence, and the assistance of a family lawyer can help to ensure:

  • Due consideration is given to the parents retaining ownership of the property and setting up an appropriate rental agreement
  • Setting up a precise and well-planned trust
  • Ensuring relevant strategies are discussed and implemented to achieve desired future outcomes (e.g., minimising the payment of duties and capital gains tax when transferring the property into the child’s name)

Safeguard your contribution: Call Freeman Family Law today

Whilst the ability and willingness to help your children achieve their property purchasing dreams is a noble pursuit and point of pride for many parents, it is important for you and your child to ensure any help provided is done in such a way that safeguards you, your child and your contribution.

Freeman Family Law has decades of experience in assisting parents to appropriately structure and secure such arrangements. If this is something you are considering doing for your children, do not hesitate to get in touch with Freeman Family Law today and arrange for an obligation free initial meeting.

Freeman Family Law has been assisting clients for over 30 years on matters involving divorce or separation, complex financial and property issues, as well as advice on parenting and wills & estates. Book an appointment with an Accredited Family Law Specialist online or at one of our offices in Yarraville, South Melbourne, Caroline Springs, Essendon or Mornington.

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