Breakups and the Bank of Mum and Dad: how to protect assets

Parents worried about giving money to their children to buy a home, then losing it to their ex, have more options than they may think.

A boom in money from the Bank of Mum and Dad is sparking concerns about protecting their assets if their adult children’s relationships break down.

Finance specialists say several strategies can help keep wealth in-house rather than watch it go to a non-family member.

Amid the biggest wealth transfer in Australian history, spouses and de facto spouses can be entitled to half their partner’s property if they split – even if the parents partly paid for it.

Asset protection strategies for the Bank of Mum and Dad include legally documented loans rather than gifts, sharing ownership and seeking quality legal advice.

Real estate buyers agent Michelle May said trillions of dollars of assets would be handed over from parents by 2050 and this represented “a lifeline for countless Australians aspiring to home ownership”.

“Research from the Australian Housing and Research Institute found that 40 per cent of 25-34 year olds surveyed expect their parents to step in to help them achieve home ownership,” she said.

Buyers Agent Michelle May says the stakes can be high. Picture: Richard Dobson

Parents were worried, particularly about less formal partnerships such as de facto relationships, Ms May said.

“Many parents don’t want their gift to be harmed if the relationship goes sour between their child and their partner since there’s a good chance the gift will be split between them,” she said.

“The amount is usually thousands and thousands of dollars, which means the stakes are very high indeed.”

Ms May said parents should have honest and open discussions with their children about financial help, obtain legal advice, could examine having multiple legal owners of a property, or even consider holding property and money in trust for grandchildren.

“It’s worth investing time and money into an experienced solicitor who will be able to give them iron-clad advice on how to safeguard any monetary help from the parents,” she said.

Australian Family Lawyers principal lawyer Barry Frakes said it was “only natural that parents worry their significant financial help may end up going to their child’s ex”.

Mr Frakes said parents should decide from the outside whether money for their child’s housing was a gift or a loan.

“You can’t switch from it being a gift all of a sudden when things go bad and you want it to be a loan and you want the money back,” he said.

Parents could opt for part ownership of a child’s property, Mr Frakes said. “You have the benefit of being better than a secured creditor by being an owner,” he said.

“Remember you may incur land tax and you will have to be party to any mortgage agreement if the children who own the other half need to borrow their share of the purchase price.”

People should never rely on handshake agreements, even with family, and all parties should get independent legal advice long before attending an auction, Mr Frakes said.

Parents must decide if their money is a loan or a gift. Picture: iStock

“You may intend to make it a loan, but if the loan is not fair and they didn’t get advice then, against your original intention, the loan might become a ‘gift’.”

Mr Frakes said wills were vital, and some families used family trusts to hold property assets.

MBA Financial Strategists director Mark Borg said simply gifting a deposit could expose parents’ money to “unintended recipients” if a relationship broke down.

Any loans should be documented to note repayments and agreed interest rates, he said.

“Loans, regardless of the source, will reduce affordability in doing so, reducing the size of the loan that your child will be able to negotiate from a regular bank.”

Joint ownership structures came in different forms, so clear agreements and exit strategies were needed, Mr Borg said.

He said parents could become guarantors for their children’s loans, but this made them responsible for the debt if the borrower could not keep up repayments.

“This could expose the guarantor’s other assets if neither party can repay the debt.”

Originally published as Breakups and the Bank of Mum and Dad: how to protect assets