As a specialist law firm helping multiple generations of Austrlain families protect themselves, their families and their asset, Genders and Partners has taken warning of the potential risks of parents assisting their children with entering the housing market, particularly if the children separate from their spouse.
BOMAD loan arrangements and financial agreements are increasing as the Millennial cohort borrow funds from their parents amid rising property prices.
This type of loan arrangement is a contract between a borrower and a lender, which formally documents the mutual promises made by each party and other key terms, such as those relating to repayment.
While it is becoming common for parents to contribute to their children’s home deposits to assist them with entering the property market, it carries risks.
One concern is where the child and their partner separate down the track, a significant portion of the parents’ money may be lost to the child’s ex-partner.
There are grave risks for parents who gift money to children or become a guarantor on a loan on their behalf without considering all of the potential outcomes and risks.
With either of these options, there is a significant risk that your child may either lose a portion of the money to their partner if the relationship turns sour or potentially you will erode your wealth and assets in the event they can’t refinance the loan.
Before parents provide money to their children, they should carefully document to whom they are providing it, and the terms on which this is being done – ie gift or loan, schedule of interest payments etc.
Young people – desperate to start their adult lives with their partners – might not be sufficiently unemotional to guard against the possibility of problems occurring down the track.
How many young persons enter into a pre-nup before they start a new relationship? Not many.
They are in love and cannot bear to contemplate the possibility that their new wonderful relationship might fail.
And yet statistics show that the majority of relationships will fail within 5 years.
So … it is up to you to be the calm and wise elder, to protect them, and you, and your money, and the rest of your family, from a potentially foolish mistake.
Be cautious, and take advice before you decide.
When it comes to Wills, asset protection & estate planning in Australia, you can trust the oldest law firm in South Australia, Genders & Partners to guide you through the tough decisions you must make for your family’s future care and welfare.
If you have any questions, or would like further information, please call or email us. Would you like a quick phone call to discuss?
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