Family Law: Financial Assistance

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Smallwoods Lawyers | Brookvale | Northern Beaches

Financial Dealings Between Family Members

It is a natural inclination between family members not to have the nature, effect and intention of their financial dealings recorded in legal terms.  However, this inclination can have significant adverse impacts on the family.  

Smallwoods Lawyers, Brookvale Northern Beaches have been involved in very costly Supreme Court proceedings between family members which could have been avoided if a record had been taken of the nature of the dealings between family members.

Loaning money to a family member? Be warned

Looking to give a family member a financial head start? Be aware of the risks – they could be very costly.

Consider the following
A 35-year-old borrows money from his parents to help buy a unit. He purchases the unit, thanks his parents, they all celebrate and life goes on.

At a future date the son’s business begins to suffer financial difficulties and eventually goes into liquidation.

As is common, the bank holds a mortgage over the unit. This mortgage is an ‘all moneys’ mortgage, meaning that all debts owed by the son to the bank were covered by the mortgage.

The parents are unsecured creditors as they did not have their son sign a loan agreement and have no other written evidence other than bank records to indicate they had lent the son money.

Being an unsecured creditor, the parents rank equally with all other unsecured creditors in the son’s bankruptcy.

This scenario is all too common, but could have been easily prevented by the son and parents entering into a loan agreement in which the son ‘charged’ his interest in the unit to rank behind the bank’s first mortgage.

If you are considering undertaking financial transactions with family members, seek good professional advice. Not doing this could be a very costly exercise.

Smallwoods Lawyers in Brookvale on the Northern Beaches has advised on family planning matters for over 40 years.

Securing your parents future can come with a nasty sting

Helping our elderly parents to live out the years in comfort and safety is a noble deed, but be sure to document your arrangement. NOT doing so may be a very expensive lesson.

Consider the following:

Ageing parents sell their home and use the proceeds to build an extension on their daughter’s home. The family feels that this is the ideal way for mum and dad to have some independence and to feel safe and secure.

The daughter lives with her husband, owns the home and has two children.

Initially the arrangement works fine, everyone is happy. Over time the daughter and her husband drift apart and eventually they seek a divorce. The main asset is the family home.

Unfortunately, the elderly parents are not on the title of the property and there is no documentation evidencing the contribution of finance and the living arrangements.

The divorce is finalised and the family home has to be sold as a consequence of family property proceedings. The extensions have increased the value of the home, however the parents are not entitled to any of the sale price. Instead the husband walks away with a windfall.

To avoid nasty expensive surprises, the parents’ financial interest in the property and their rights should have been documented.

Smallwoods Lawyers in Brookvale on the Northern Beaches has advised on family planning matters for over 40 years.

Assisting Adult Children To Buy Their Home – Gift or Loan

To safeguard everybody's interests, document the arrangement.

Parents June and Ray want to assist their daughter and son inlaw purchase property.  They are not sure whether to provide the funds as a loan or a gift.

What should they do?  Get advice!


  • Does the daughter or son-in-law carry on a business which exposes them to risk?
  • Is the daughter's marriage solid?
  • What happens if daughter predeceases parents after the loan is made?

These are just some issues needing to be addressed.

Most importantly document the terms of the loan:

  • Is it repayable on demand or by a future date?
  • Is the loan interest free?
  • Maybe interest only accumulates from the date of demand for repayment.
  • Consider charging the interest of child and/or child spouse with a first or second mortgage or caveatable interest.

The above may be important in future family law proceedings between child and spouse.

Consider estate planning issues of parents such as granting the child option to purchase or set off the value of the loan or interest in property against the child's interest in the parents' estate.

Smallwoods Lawyers in Brookvale on the Northern Beaches has advised on family planning matters for over 40 years.

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