It is becoming increasingly common for parents to help their children purchase a first home. Often this is done as an outright gift of funds, and it is important to protect those funds from any relationship property division if the child separates from their partner.
The Property (Relationships) Act 1976 says that generally, two people who live together in a relationship for three years qualify for a relationship property division on separation. If this happens, the ‘family home’ where the couple have lived is presumed to be relationship property and the equity will be divided equally – even if a large portion of the purchase price came from an outside source.
The best way to ensure that the parents’ contribution can be recovered is for the child to sign a “Contracting Out Agreement” with their partner. This is an agreement that specifies how the couple want their relationship property to be divided if they separate. The funds advanced to the child can be marked as the child’s separate property, which excludes it from the property division. A Contracting Out Agreement can also be used to protect the child’s own savings – for example, if one partner to the relationship contributed $70,000 to the house deposit, while the other contributed only $20,000. This disparity in contribution can be accounted for in a relationship property settlement if it is addressed in a valid Contracting Out Agreement.
Another option for protecting a parent’s contribution from becoming mixed into a relationship property settlement is by loaning the money. This can be achieved through loan documents that allow the parents to call in the debt if the couple separate. If a parent is considering advancing money to a child who is not yet in a relationship, we recommend completing loan documents as this can protect the money if the child later enters into a relationship. If the child is already in a relationship, this money can be loaned to both the child and their partner – to be repaid if they separate.
Helping a child buy their first home is exciting, but there are some safeguards that should be set in place before advancing any money. If you have received a gift of funds from a parent, or if you are a parent considering advancing money to your child, contact one of our lawyers to discuss the options for protecting these funds.