The Lawyer's Lunchbox

Improvident Loans to Children

Buying the first home by one of your children has probably never been harder. A low interest regime is probably the root cause as it has pushed up the capital values of property. There are a raft of other reasons and the cost of building is a large factor as well.

To enter the property market a large deposit is a good start. Securing the loan is not so hard, but the the long term committment to making the repayments is - and that usually takes the best part of two incomes to keep the whole life / debt balance in check.

It is not uncommon to see parents giving their child and their son or daughter-in-law a helping hand by making an advance which forms part of the equity in the new home.

In the heading I use the term "Improvident". A dictionary definition of the word Improvident is - Not provident; wanting foresight or forethought; not foreseeing or providing for the future; negligent; thoughtless; as, an improvident man.

Is or was the advance an outright gift, a loan or even equity?

All too often the helping hand of the parent is later judged without the benefit of any documentation as a result of the break up of the relationship of their child's marriage or relationship.

A little bit of foresight or forethought would have saved a lot of un-needed anquish in seeing their helping advance as suddenly being the catalyst for you being part of your child's family law court proceedings.

If the advance was a Loan - document it as Secured Loan with the full standing and status as a second mortgagee. No ifs buts or maybes. That's where Lawyers are really useful.

posted by brett hayton @ 8:17 AM