The July 2018 issue of the North & South magazine is featuring an interview with Jeremy Sutton exploring how things can go bad when parents help their children with buying a property. Often seen as an action that does not require legal support or documentation, it can turn out really problematic in the future.
You can find Jeremy’s opinion on the matter on page 40.
Auckland barrister Jeremy Sutton has spent the past decade or so helping families when a Bank of Mum and Dad relationship goes bad. The key issue, he says, is the presumption from parents that the money advanced is a loan and not a gift.
“These agreements begin with the best of intentions, so often parties don’t believe they need to seek legal advice or document the agreement in the proper legal manner,” says Sutton. “But then the children’s relationship may split and the parents try to get their money back.”
Cue the mother, father, aunt, uncle and cousin of all legal battles, with the court having to decide what the parents’ intent was at the time the money was advanced – was it a gift or a loan? “Without proper documentation, that can be extremely problematic, cost thousands and take years to resolve.”
Sutton says such situations are on the rise, estimating around 20% of cases currently before the Family Court involve parents trying to recover their investment. “It happens a lot with recent Asian migrants, whose cultural belief might be that you lend your children money without documentation to support it. They often don’t realise that it doesn’t work like that under New Zealand law.”
Sutton points to a 2017 case where Chinese parents gave their daughter $335,000 to buy a house, without any documented evidence. When the daughter’s marriage broke up, their former son-in-law claimed the advance was a gift, not a loan. He refused to pay back his half of the money and the case wound up in the Wellington High Court. In the end, Judge Simon France agreed with the parents and said the money was intended as a loan.
“My advice would be for parents to have their own lawyer who can draw up an agreement that ring-fences the amount given, specifying that it is a loan – as well as any terms.”