If you help your child and their partner buy a home, can you get your money back if they separate?
You may have helped your child and their partner buy a property – but now they’re separating. Can you get your money back?
In this blog, I offer advice on what to do if you find yourself in this situation.
The tight housing market continues for the young
Despite the recent lull in the property market in Australia, it is becoming increasingly difficult for younger generations to secure their first home. More and more parents are now helping children and their partners with down payments or funds towards the purchase price.
Consider the following scenario. You lend money to your child and their partner so they can purchase a property. A few years later, your child and their partner separate and need to finalise their financial affairs. The equity in the property forms the majority of their asset pool. In this instance, would you be able to claim all your funds back from either of them?
Gift or loan?
The main question here would be whether the money you lent is considered to have been a gift to your child and their partner or a loan to them which is to be repaid at a later date. If the former, then it is unlikely that you will be able to be repaid any money at all. To prove it was, in fact, a loan, however, you will need to show evidence that the sum of money was given with a condition, expectation or intention of repayment.
For example, if there have been conversations or actions which indicate that at least one party (you, your child or their partner) had shown an expectation for repayment, then it is more than likely that the sum of money was given as a loan. Similarly, if in fact there has been some repayment of a small portion of the whole amount, then it is more likely than not that during the relationship between your child and their partner they had been prepared to repay at least some of the loan.
What about granny flats?
With the increasing demands of careers, we have seen a rise in arrangements whereby parents move in with their children to take care of grandchildren. Granny flat arrangements are now more popular than ever.
To build on the scenario above, let’s assume that the money you lent to your child and their partner went towards the building of a granny flat behind the main dwelling on the land. In this instance, would you get your money back for chipping in for the construction?
The main question to consider is whether the granny flat was in fact used by you.
If it is the case that you lived in the granny flat or if it in some way benefited you, then the view under the law is that you will have enjoyed the benefit of occupation, as well as other incidental conveniences from residing in it. In other words, you will have already received repayment in kind. It would follow that you are less likely to be able to recoup any funds you contributed towards the construction and necessary fit-outs. Alternatively, your initial contribution may be seen as having been an investment in the property for your personal benefit, for which you ultimately did receive a return.
Third party role?
In the family law context, one of your options may be to intervene as a third party in the family law property negotiations that take place between your child and their partner.
Alternatively, you may choose not to intervene as a third party but seek reimbursement from your child directly after they have received a family law property settlement. The latter option will depend on your relationship with your child.
One thing to remember, regardless of which option you ultimately choose, is that you may not be able to reclaim the whole amount that was loaned. The amount that you can receive will depend on the strength of evidence you can provide that shows the amount was, in fact, a loan and not a gift.
Other factors that will influence your final payout include the equity in the property as a whole at the time of sale and the total amount of legal costs spent in the process of reaching the final agreement.
Other steps which you may wish to consider during negotiations in the above scenarios would be lodging a caveat or registering a mortgage over the property as a whole. We encourage you to speak to a lawyer before making such decisions to secure your interest.