Helping the kids buy a property?

With today’s surging property prices and the cost of living generally increasing, more and more parents are assisting their children financially, particularly with the purchase of their first home.

But what happens if the child experiences a relationship breakdown? Can your child’s spouse get a share of the funds in a property settlement? The short answer is yes!

In the recent case of Chaudhary v Chaudhary[i], a father financially assisted his son and daughter-in-law by providing them with the sum of $1.2 million to enable the purchase of a property.  When the marriage broke down, the daughter-in-law claimed that the funds were provided as a gift and therefore formed part of the asset pool available for division between the couple in the property settlement.

The Supreme Court of New South Wales did not agree and ordered the amount advanced to be repaid to the father.  The Court found that it was the clear intention of the father that the funds advanced for the purchase of the property was by way of a loan which was secured on the property by a second mortgage.  The Court also found that the daughter-in-law understood the nature and effect of the arrangement.  In reaching the decision, the Court considered the intentions of the parties at the time the funds were provided and reviewed various legal instruments such as the Contract for Sale, the binding financial agreement between the son and daughter-in-law and the terms of the second mortgage.

The case clearly demonstrates that the intentions of the parties and the legal documents reflecting the intentions are critical in determining whether the funds should be treated as a gift or a loan capable of repayment.

If you are thinking about providing financial assistance to your children, it’s important to obtain legal advice about the various ways these funds can be protected.

From an estate planning perspective, it will be important to consider if the loan is to be forgiven or to form part of the child’s share of the estate, and if testamentary trusts should be incorporated into the will for continuing asset protection purposes.

[i] (2017) NSWSC 222

 

Marie Brownell

Head of Private Client Services

Accredited Specialist (Wills and Estates)

[email protected]