Pippa Colman column: How the bank of mum and dad can bite

Sunshine Coast family law expert Pippa Colman tells how the bank of mum and dad can come back to bite and how to prevent things turning ugly.

Over the past 20 years house prices have increased significantly and it has become common for adult children to look to the ‘bank of mum and dad’ for assistance to buy a home.

That bank can also pay for grandchildren’s private school fees, provide the capital to set up a business, provide carry on finance or pay down debt.

This financial assistance is often tens of thousands, sometimes hundreds of thousands of dollars, and occasionally, millions.

Everyone is happy at the time of the loan or gift but that changes if a couple separate.

On a family law property settlement, these loans/gifts are relevant.

If the assistance is a loan, then it must be repaid.

If it is a gift, it is a contribution by the spouse whose relation/s made the gift.

At the time of property settlement, recollections often differ.

Questions will be asked.

If the financial assistance was intended to be a loan, is there an email trail leading up to the loan?

Pippa Colman, Founding Director of Pippa Colman & Associates Law Practice

How was the loan recorded in the bank statement when it was paid?

Was that loan recorded in a mortgage or deed of loan?

Has interest been paid? Has any part of the loan itself been repaid?

If there is a loan, there is an expectation that the loan will be repaid.

This reduces the asset pool available for division between the parties and means money back in the pockets of mum and dad.

If there was no expectation that the money would be repaid, then it is a gift.

But it can be claimed by the related party as a “contribution” and that party will get an uplift in the property settlement.

To protect all parties, they must ensure that all loans are recorded in writing, signed by all parties.

Mum and dad should get their own separate legal advice.

The couple in receipt of the financial assistance should consider entering into a Binding Financial Agreement to quarantine the financial assistance for the benefit of the related party if it is a gift or to ensure the loan agreement is binding on the parties if they separate.

Taking these steps can save unnecessary grief.

It might save a day in court.

It might mean that the bank of mum and dad get the money back and can lend it again.

Pippa Colman is the founding director of Pippa Colman & Associates Law Practice.