Increased reliance on the bank of mum and dad to help young people get into a home has led to an increase in disputes involving family financing arrangements.
Richard Gardiner and Robert Dickfos of law firm HopgoodGanim say a number of recent cases highlight the importance of clearly documenting agreements between parents and children to prevent later uncertainty, family conflict and resort to the courts.
In the recent case of Chaudhary v Chaudhary, $1.2 million was advanced by a father to his son and daughter-in-law, Adrian and Justine, to assist with the purchase of a house in Sydney’s inner west.
Prior to the purchase, Adrian and Justine entered into a cohabitation agreement, which stated that monies gifted or advanced to Adrian by his parents would be his sole property.
The father originally agreed to “give” the couple the money to assist with the purchase of the house, and made clear statements to that effect to the bank. However, the father and Adrian ultimately decided the money would be advanced as a loan.
A mortgage document was entered into naming the father as a mortgagee. That document was never registered.
When Adrian and Justine’s marriage broke down, the father commenced proceedings claiming that the money was advanced as a loan, while Justine argued that the money was advanced as a gift to the parties. The dispute went through the Family Court, the Supreme Court of New South Wales and the appeal division of the Supreme Court.
In the first instance, the judge found that the money was a gift. On appeal, the court ruled that the money was advanced as a loan secured by the mortgage document and required a sum in excess of $1.6 million (including interest) to be aid from Adrian and Justine’s settlement.
The case demonstrates the difficulties that can arise when family members enter into financial arrangements with each other, particularly when property is involved.
They must clearly state and record their intentions, rights and obligations in a written document.
If the terms of an agreement or arrangement are not recorded in writing, it can lead to disputes between family members and negative impacts on family relationships.
It can also involve the cost of going to court to work out the parties’ positions and lengthy delays in getting the matter sorted.