The Bank of Mum and Dad Needs A Paper Trail

The Australian Financial Review recently reported (8-9 May 2021) that parents are now among the nations’ top 10 lenders for home loans with data showing more than 60% of first home buyers are receiving assistance from their parents to purchase their first home.

Unsurprisingly with the world in the middle of a pandemic and the economy in recession, now more than ever, children are turning to their parents for financial assistance. It is incredibly important that prior to parents providing financial assistance to children, parents must first be clear on whether the assistance is to take the form of a gift or loan.

The distinction between the financial assistance provided being a gift or loan becomes incredibly important in the following scenarios:

  • the child’s relationship breaks down and their spouse alleges that the financial assistance was a gift rather than a loan;
  • the parents pass away and their Executor is left to determine whether or not the financial assistance is to be repaid to the Estate;
  • a sibling makes a claim for further provision from the parents’ Estate on the basis that the child has already received financial assistance during their lifetime;
  • the child becomes bankrupt and the trustee in bankruptcy classes the financial assistance as an asset as opposed to a liability;
  • the relationship between the parents and child breaks down;
  • the parents are receiving a Centrelink pension which may be affected by providing the financial assistance to the child.

In the above scenarios, it is generally the parents or their Executor who bear the onus of proving that the financial assistance was a loan rather than a gift. Often the only written evidence available is the bank transfer, with the only other evidence being verbal communications resulting in a “he said, she said” argument.

Disputes of this nature can so easily be avoided by first consulting with a Solicitor to create a paper trail and have a properly prepared and executed loan agreement in place.

If you or someone you know of are considering providing financial assistance to a child or any other person, please contact our office to make an appointment to meet with one of our experienced Solicitors. We are also able to advise on any existing arrangements that have not yet been documented. 

Family Law: Lawyers and the Bank of Mum and Dad

laywer with couple and paperwork

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.  

Our Family Law team at Bowen Buchbinder Vilensky has the skills to assist our clients to negotiate this complex system and navigate through Lawyers & the Bank of Mum and Dad. 

To book an initial consultation with one of our experienced family lawyers, please get in touch. Alternatively, to get started online now, visit the BBV Legal Online System where you can enter your relationship details and receive information that is free, instant, personalised and helpful.

Family Law: A Complex And Private Legal System

lawyer with couple at desk

In Australia all separating couples, are subject to a family law system that is both “bifurcated” and private. 

We can read about Angelina Jolie and Brad Pitt’s divorce and separation process in the media, and learn that in California Angelina and Brad are subject to a “bifurcated” legal system. But you will not usually learn details about local celebrities’ divorce settlements.

The fact of a separation or divorce and general details can be published but that is because it is not about family court litigation or “proceedings”.  

Section 121 of the Australian Family Law Act makes it an offence to publish details of separating couples’ court cases.    

Sometimes when media outlets have sought permission, the Court grants leave for the publication of details concerning a case, or the Court itself directs publication when pseudonyms rather than the real names of the parties are used.  On other occasions, real names are necessary, for example, if there is a missing child.

The embargo on publication means not only can details about a family law case NOT be published in the media but also NOT on social media. 

A bifurcated divorce in California means “they are legally divorced, but are yet to decide on child custody and financial arrangements”.

In Australia, the Family Law Act provides that a person can apply to the court (or negotiate a settlement without going to court) as soon as they separate, but can only apply for a divorce after 12 months has run.

That is how a bifurcated system operates, where the processes are separated into separate branches or parts.  In Australia there are three parts to the system, including a separate child support system.

Services Australia Child Support decides financial obligations for children after separation, separately from Family Court property settlement and spousal maintenance.  Spousal maintenance (rarely used in the 21st Century) is usually resolved at the same time as property settlement. Spousal maintenance can be obtained and very rarely, after property settlement.

Divorce (the right to remarry without committing bigamy) often follows later, after the hard work of financial settlement and arrangements for the children has been done. 

This complicated system is private, to protect the individuals and families involved. 

People can take steps and make decisions or seek legal process to assist them, using those parts of the system that they need at that time.  But there are pitfalls that require experience and expertise in family law to negotiate.

The confidentiality of the system means that general public knowledge of family law in Australia is limited, scattered and often ill informed.

Our team at Bowen Buchbinder Vilensky has the skills to assist our clients to negotiate this complex system as best suits them.