Why is it important to know about Lawyers & the Bank of Mum and Dad? The Australian Financial Review reported (8-9 May 2021) that parents are now among the nations’ top 10 lenders for home loans. Remarkably, data shows more than 60% of first home buyers are getting assistance from their parents to get into their first home.
How should the families concerned, mum and dad and their adult child and possibly their child’s partner, document such financial assistance?
Binding Financial Agreement (BFA)
What about a Binding Financial Agreement (BFA) for the happy couple, each requiring their own separate lawyer for advice? Another newspaper (The Australian) the same weekend carried comment from family lawyers recommending BFAs where there are Mum and Dad loans.
A BFA might provide that in the event of a separation of the couple, the loan from Mum and Dad be repaid, or not, and by whom, but is a BFA is the right solution?
Remarkably, no one knows how successful BFAs are for most couples. There is no record of the numbers of BFAs done in Australia. The University of Sydney (UTS) has in April 2021 Family Law Section Newsletter invited lawyers to take part in a project involving academics from several universities to gather data and report about BFAs.
In the 20 plus years since BFAs were first permitted there has been significant litigation between the couples to the BFA and sometimes including their lawyers, that ironically BFAs are intended to prevent.
A more immediate solution could be a formal contract between the Bank of Mum and Dad and their adult child and possibly their child’s partner, as to the terms of the loan. Some of the loans will be ‘gifts’ and/or required to be gifted as part of the deposit requirements for the primary housing loan, so what happens then? On any basis, financial planning and legal advice should be considered by all parties.
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