The “Bank of Mum and Dad”

The “bank of mum and dad” is increasingly being accessed by young adults to help them enter the housing market, but what happens to this money when it becomes entangled in Family Law matters?

The identification of such contributions as a gift or a loan will impact how it is dealt with by lawyers assisting in negotiating the division of assets should the parties separate.  If it is considered a gift, it will generally be considered a contribution made by the party during the relationship and the parents will not be entitled to have the funds repaid.  If it is considered a loan, the loan will form part of the property pool, like any other debt and the parents can enforce repayment of the debt.

In the event of a separation, it can be difficult to prove whether money given by a parent to a child is a loan.  There are steps that can be taken to increase the likelihood that money given to a child will be identified as a loan.  This includes preparing a formal loan agreement which sets out details including interest and loan repayments, and/or taking an interest in the title of any property purchased.

Since May 2022, we have seen 13 interest rate hikes and an increase to the cost of living which is putting pressure on people to meet their expenses.  In turn, payment to the “bank of mum and dad” is being pushed down the priority list so that other expenses can be met.  This could mean that the repayments have decreased or have stopped altogether.  In doing this, it can impact the ability to successfully argue that the money given to your child was a loan, in the event of a separation.

It is important that any parents considering giving their children money obtain independent legal advice beforehand to ensure that the best arrangements are put in place.  If you are considering contributing to the purchase of a property for your child/ren, contact our office to arrange an appointment with one of our experienced family lawyers today.