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In the current economic climate it is becoming increasingly common for parents to give or loan their children money for a deposit on a first home, or to reduce bank debt. But beware – gifted funds could be at risk from the child’s spouse or partner making a relationship property claim in the event of separation or death if steps are not taken to clearly document how the funds are being advanced.
There are two key reasons to think about:
One of our team members, Rachel van Eekelen, together with barrister Stephanie Marsden, recently appeared in the Christchurch Family Court in a case where the presumption of advancement was upheld in circumstances where parents had advanced significant funds to their child. This case featured various other legal arguments and as a result the funds provided by the parents were not shared equally but were shared in unequal parts.
There are many lessons to be learned from this decision. One is for Mums and Dads to ask themselves: are you giving money to your child for them to do what they want with it, or are you lending it to them with an expectation that it will be repaid (or repaid if their relationship breaks down)?
If you are gifting money, talk to your children about them entering into a contracting out agreement with their current, or any future, partner or spouse to protect the gift as their separate property and avoid it being shared in the event of separation.
If a gift is not intended, or sharing of the funds is not desired, then the advance must be documented as a loan. A contracting out agreement should also be considered in these circumstances.
If you want to know more about contracting out agreements, or documenting family loans, please contact any member of our family law team.