Recent research has confirmed what many of us have come to know or even experience ourselves. With the cost of living increasing and a strong property market resulting in record high property prices, the “Bank of Mum and Dad” has become one of Australia’s largest mortgage lenders, with 60% of first home buyers receiving an average of $92,000 in financial help from their parents. 

    Whilst borrowing from the Bank of Mum and Dad may be a ready source of funds for many buyers, this option is not without its pitfalls. It’s important that parents and children alike obtain legal advice about the consequences and risks of borrowing and lending within the family. 

    If you intend to provide your child with a cash payment, there are various matters that you will need to take into consideration before signing that chequebook or transferring those funds!

    Gift or loan?

    The first question you need to consider is whether or not you intend for a cash payment to your child to be treated as a gift or a loan.

    Before proceeding to make a gift of the funds, careful planning and legal advice should be obtained first to weigh up the risk of those funds being lost due to: 

    • Bankruptcy;
    • A family law claim from your child’s spouse or de facto partner;
    • Death – If your child dies, it may be that your child’s spouse or de facto partner becomes the sole owner of property that was purchased with your financial assistance. If you die, your payment to a child may have unintended consequences between beneficiaries under your will, including your other children.

    Consideration should also be given to whether the gift might affect the Lender or the Borrower’s Centrelink payments 

    Often parents agree to loan their children money without taking steps to formally document this intention or agreement. Without formal documentation, it may be that your funds are not as protected as you’d expect.  The best way to protect your funds is to formally document the loan in writing with the assistance of a lawyer. Consideration should be given to repayment terms and security for the loan, amongst other matters.  


    To ensure your helping hand doesn’t turn into a headache, contact our office today to book a strategy session with one of our talented family or estate lawyers. 

    We can take into consideration your individual needs and circumstances and make recommendations as to the best methods to protect your gift or loan.  Some options to consider may include entering a Financial Agreement (sometimes referred to as a Prenuptial Agreement) to protect this gift or loan in the event of a family law dispute, a clause in your will referencing the loan or gift, or entering into a loan agreement.  

    If you are about to give or receive funds to or from family members, get in touch with our team to ensure both the funds and your family are protected.
    T 9318 4188

    McManus & Co Lawyers
    McManus & Co Lawyers
    McManus & Co Lawyers Suite 103, 1 Thomas Holmes St Maribyrnong VIC 3032 T: (03) 9318 4188

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