We act for a number of couples going through separation and time and time again we see that one of the couples’ parents have given money to their son (as in this example) or daughter to help them buy a property.
The son lives with a spouse (not necessarily a wife), in the house which his parents largely paid for. When the couple separates, the spouse may want half of the house which includes the money given by the parents. Usually, it is at this point that parents may claim that the sum of money was a loan in order to ensure this money stays with their child as intended. But because of the nature of the relationship between parent and child, it is difficult to disprove whether it was a loan or gift, unless the sum was genuinely a loan.
In NZ law there is a presumption that the money given was a gift. This means that if your children get married, or are in a relationship for more than three years, but get divorced or separated, the spouse is entitled to half of your child’s assets, including the sum of money given by you to purchase the property. There are other more complex rules surrounding relationship property but the rule of equal sharing between spouses or partners is the basic starting point.
This happens so often, and the usual result is that the ex-spouse ends up getting half of the sum given by you to your child.
To avoid this result, when you decide to help your children gain a foothold in the property market by giving them a financial boost, you should go to a lawyer before transferring the money and document a proper loan which has to be repaid. That way if there is a separation you can get the full amount back afterwards, then re-lend the money if you choose to, without the ex receiving a dime. This may not stop the argument in Court but at least it will give you a much better chance of winning.
Furthermore, if you do provide a loan then you should have regard to this in your will.
To get in touch with Edwin phone 021 243 5203 or email edwin@k3.co.nz.
