It is becoming more and more common for parents to help their children by assisting them to purchase their first home. Many clients wish to protect that money to ensure that if the child :
- separates from a relationship; or
- becomes subject to any litigation or creditors proceedings,
that the money can stay in the family.
How to protect the money
The best form of protection is for the parties to enter into a formal, properly documented loan agreement, secured by a mortgage. In order for a loan agreement to be valid and binding:
- it must be drafted on commercial terms;
- those terms must be adhered to by the respective parties;
- if the child is in a relationship, all parties to that relationship should sign the loan agreement;
- any other documentary evidence to verify the money given (such as bank statements, deposits, eft transfers or emails exchanged) should be collated and kept separately; and
- it must be evident that all parties agree that the money can be called upon at any time by the lender.
In addition to the above, the loan should be secured by a registered mortgage over the relevant property.
What happens next
If the child goes through a divorce or is sued, the loan is repaid to the parents before the assets of the couple are divided or the child declares bankruptcy.