A professional, holistic and thorough approach to loans to family and friends
Did you know that if the ‘bank of mum and dad’ was a bank, they would be one of the top ten lenders in Australia? According to statistics, 20% of first-home buyers rely on some kind of loan from their parents when applying for a mortgage. However, many of those loans go undocumented or aren’t documented properly.
If you are looking to loan money to a family member or friend, have you considered the following questions?
- Is it a loan or a gift?
- Do you expect the loan to be repaid and, if so, when?
- Have you organised for a loan agreement to be signed?
- Are you expecting interest to be paid on the loan?
- Have you made changes to your will or estate planning to reflect what will happen to the loan on your passing?
- Do you want the loan protected in the instance of a relationship breakdown?
Consider this: mum and dad loan to their daughter to buy her first house. Their daughter then enters a de-facto relationship. Her partner lives with her in the house. After a few years the relationship breaks down and a property settlement is instigated. Would the loan be added to the settlement pool and would the daughter’s partner have the right to claim part of the house?
What if the mum and dad were to pass away before the loan is repaid? Would their will take into account the loan in the division of assets? Should the loan be deducted from or repaid out of that child’s entitlements in the will?
These are all important elements to get right when setting up a loan to your family or friend.
The advantage we have at HopgoodGanim is the ability to work with professionals from our Finance, Family Law, Dispute Resolution and Estate Planning services to cover all legal areas which may be impacted by a loan to family or friends. With HopgoodGanim you get the peace of mind that the loan has been set up with a full-service holistic approach. You may or may not need all of these areas of law but if you do, we have it covered.
Here is what each team will do:
Finance
- Prepare loan documents (which will satisfy the needs of the courts) setting out the terms of existing or proposed loans to family members and their repayment; and
- If required, prepare guarantees and security documents (such as a mortgage over real property, general security to be given by an entity controlled by the borrower, or security over other significant assets) securing the loan.
Family and Relationship Law
- Advising clients on how a loan (documented or not) or financial gift may be dealt with in relation to a property settlement under the Family Law Act 1975.
Dispute Resolution
- Advice to clients who have already provided loans or financial support to others as to their present position and options;
- Undertaking all aspects of recovery action for loans advanced to family members or friends, including letters of demand, enforcing securities and commencing court proceedings; and
- Attending mediations or settlement conferences in an attempt to resolve disputes, prior to undertaking more formal recovery steps.
Estate Planning
- Review, prepare or update your estate planning documents to ensure that they reflect the loan and other documents being prepared so as to give effect to your instructions; and
- Deal with the loan if it is not repaid or otherwise finalised prior to your death.
