It’s getting harder and harder to get on the property ladder in New Zealand, and particularly in Auckland. Many parents who are in a position to do so help their adult children in to home ownership by providing part of the purchase price.
Many of those parents will be happy to give that money to their adult child. Few will want part of that money to go to their child’s ex spouse or partner, but that is one of the risks people take when they contribute money to their son or daughter’s property purchase without giving proper thought to what the future might hold.
There are two basic scenarios here. In the first, the adult child is currently single and their parents aren’t really thinking about the risk of their money ending up with a hypothetical ex of their child’s. In the second, the adult child is in a relationship, it appears to be going well, and everyone gets on nicely; it may even be that the parents now view their child’s spouse or partner as another child of their own. In both scenarios the common factor is that things are good now and so the risk is that no-one is thinking about future risk. This is understandable, because people don’t want to have to be pessimistic about their children’s personal lives, but without a touch of realism there could be some unintended consequences. It is also understandable that with the way the housing market is at the moment, people buy under time pressure and in the rush everyone involved doesn’t take the time to wonder about how the future might turn out.
If parents make an outright gift of money towards the purchase price of their child’s home, that equity becomes the personal property of their child. This isn’t a problem while their child is single. If their child later gets into a relationship and the child’s home becomes the family home, that equity can also become relationship property to be shared equally between the child and their spouse or partner if they separate. That is a hard rule, and popular notions of fairness and “but it was mine before I even met them” do not apply. The rule operates in the same way if the gift is made when the child is already in a relationship and the parents make a gift to the purchase of a family home.
Because of that effect, history often gets re-examined when people break up. The spouse or partner insists the money from the in-laws was a gift, while the child (and often the parents too) insist it was always a loan, regardless of what the partner/ spouse knew about it. Where there is legitimate paperwork to show a loan, the loan argument should hold up. Where there isn’t such paperwork, or its timing seems strange, a lot of expensive arguing and court time could be involved, and ultimately someone who proves to be a visitor to the family walks away with money that the parents worked hard for.
There are some simple prudent steps that can be taken to avoid the worst case scenario happening. If you are helping your child buy a property – or receiving help from your parents – you should talk to a lawyer about making sure it all stays in the family.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Wallace Revell
wrevell@farry.co.nz
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.