Protecting Your Investment In Your Children

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By Sage Leslie

Supporting an adult child going through a separation can be an incredibly stressful and sad time for any parent. However, things can become even more complicated if you are also entangled financially.

It is increasingly common for parents to assist their children to buy their first home. You may have agreed to go guarantor for the mortgage, or provided some or all of the deposit – perhaps by taking out an additional mortgage over your own home. There may be an “understanding” that the money provided will eventually be paid back by the couple – but very often these in-family loan agreements are never documented. Is there actually an expectation that the money will be paid back? Over what timeframe? Will they pay interest? It may be that both sets of parents have provided capital to the couple so there could potentially be even more people involved.

When a couple separates they will need to make a list of all of their assets and liabilities so their property can be divided between them. Is the money that their parents provided to be considered a liability that needs to be paid back out of the equity in the house before the balance is divided between them? Your child’s ex-partner may argue that the money you provided was really a gift and not a loan, and therefore doesn’t need to be repaid to you. This assertion can be difficult to counter if there is no paperwork documenting the loan.

Money is also frequently advanced by parents to help a child establish a business. Depending on the business structure, in the event of a relationship breakdown the business may be considered an asset of the relationship and subject to a division of property. If your contribution to the business is not properly documented, either as a creditor of the business or as an interest in the business itself, it may become difficult to protect your investment.

The Courts have the power to “look behind” business and trust structures and the legal title to property in certain situations, and to “claw back” property into the pool to be divided between the separating parties. If your financial situation is entangled with the couple the Court may decide that it is necessary for you to be made a party to any proceedings between them – which can become costly for you.

If you are planning to provide money to your children to finance a home or business enterprise, it is important that you consider what could happen if they enter a relationship or separate from their partner. DDCS Lawyers can assist you in properly documenting the financial arrangements you enter into. Please contact us on (02) 6212 7600.