For many parents, helping their child buy a home is one of the most meaningful forms of financial support they can provide. Whether it is contributing towards a deposit, assisting with a property purchase or providing financial support to get started, most parents do so with the best intentions.
However, before you transfer money to your child, it is important to stop and consider one important question:
Is this money intended to be a gift, or is it intended to be repaid as a loan?
This decision may seem simple at the time, particularly within a family where there is trust and goodwill. However, circumstances can change. Relationship breakdowns, financial difficulties, bankruptcy, death or disagreements in the future can create uncertainty if the arrangement was not clearly documented.
At Orion Family Law, we encourage parents to obtain independent legal advice before providing significant financial assistance. Proper planning at the beginning can help protect your intentions, your financial contribution and your relationship with your child.
Step 1: Decide What You Intend the Money to Be
Do you intend the money to be a gift?
A gift means you are voluntarily providing money to your child with no expectation of repayment.
Before gifting money, consider:
☐ Am I comfortable never receiving this money back?
☐ Would I still be comfortable if my child separated from their partner and the money became part of a property settlement?
☐ Would I be comfortable if my child experienced bankruptcy or financial difficulties?
☐ Could this create an imbalance between my children or beneficiaries under my Will?
☐ Could this affect my pension or government benefits?
If the answer to these questions is no, you may wish to consider whether the money should instead be structured as a loan.
Step 2: If It Is a Loan, Make Sure It Is a Genuine Loan
A family loan is still a legal arrangement and should be treated seriously.
A common misconception is that a verbal agreement is enough because “we are family”.
While trust is important, a clear written agreement helps avoid misunderstandings and protects everyone if circumstances change.
Family Loan Checklist: How to Protect Your Money
If you intend the money to be a loan, consider the following:
Put the Agreement in Writing
☐ Prepare a written loan agreement.
☐ Clearly record the amount provided.
☐ Identify who is borrowing the money.
☐ Record whether interest is payable.
☐ Set out repayment terms.
☐ Explain what happens if the property is sold.
☐ Include what happens if your child separates from their partner.
A written agreement can help demonstrate that the money was intended to be a loan and not a gift.
Ensure Everyone Understands the Arrangement
☐ Your child understands the loan obligations.
☐ Your child’s partner understands the arrangement if they are purchasing the property together.
☐ Everyone receives appropriate independent legal advice.
This can help avoid future arguments about what was intended.
Consider Securing the Loan Against the Property
If you are providing a significant amount of money, consider whether the loan should be secured.
Possible protections may include:
☐ Registering a mortgage over the property.
☐ Understanding whether a bank holds the first mortgage.
☐ Understanding how much equity exists in the property.
☐ Ensuring the security arrangement is properly documented.
A registered mortgage generally provides stronger protection than an informal promise to repay.
Step 3: If Your Child Owns the Property With Their Partner
If your child is purchasing a property with their spouse or partner, consider:
☐ Is the loan agreement signed by both owners?
☐ Is the loan secured against the entire property?
☐ Does your child’s partner understand and acknowledge the arrangement?
☐ Should a Binding Financial Agreement be considered?
This can be particularly important if the relationship later breaks down.
Step 4: Consider What Happens If Circumstances Change
Before providing financial assistance, consider:
If Your Child Separates
Ask:
☐ Can I prove the money was a loan?
☐ Is there a written agreement?
☐ Was there security registered?
☐ Have repayments been made?
Without proper documentation, disputes may arise about whether the money was intended to be a loan or a gift.
If Your Child Experiences Financial Problems
Consider:
☐ Could creditors or a trustee in bankruptcy claim an interest?
☐ Is my financial contribution protected?
☐ Is the arrangement properly documented?
If You Pass Away
Consider:
☐ What happens to the loan if it remains unpaid?
☐ Should your Will address the outstanding amount?
☐ Could the loan affect how assets are distributed between beneficiaries?
Estate planning should be considered alongside any significant financial assistance provided to family members.
Quick Decision Guide
I want to help my child and I do not expect the money back
→ Consider a gift
→ Obtain advice about possible future consequences
→ Review any impact on your estate planning or benefits
I want to help my child but I want the money protected
→ Consider a family loan
→ Document the arrangement
→ Consider security over the property
→ Ensure all parties understand the terms
I want flexibility but also protection
→ Speak with Orion Family Law about options tailored to your circumstances
Final Thoughts
Helping your child financially can be a generous and life-changing decision. Taking the time to properly structure that assistance does not mean you lack trust. It means you are protecting your child, yourself and your family’s future.
Before providing significant financial support, obtaining independent legal advice can help ensure your generosity achieves what you intend.
