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Withdrawal from the Bank of Mum and Dad

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 Making a Withdrawal from the Bank of Mum and Dad

Is it a Gift or a Loan?

With the Australian preoccupation with getting into the housing market and the difficulties faced especially by young, first home buyers, very often cashed-up or asset-rich parents will assist their children by ‘lending’ them money. However, such acts of generosity can lead to serious fallout if there is not a clear definition of the actual ‘loan’. Is it a gift? An early inheritance? A loan? Do the parents expect repayments? If so, on what terms and in what timely manner?

The Bank of Mum and Dad is flourishing, so I was very interested to read a news story in the New Zealand Herald with the attention-grabbing headline “We Are Not a Bank – Parents Sue Daughter”. http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11852648

Parents Sue Daughter Over Property Loan

While this particular story happened across the ditch, the events and circumstances are frequently played out here in Australia.

In the NZ case, the parents sued their daughter to recover $345,000 that they lent her to purchase a house. According to the news story, the daughter had refused to repay the loan even though she had money to spend on other ‘luxuries’ while her elderly parents continued working hard just to make ends meet.

This raises the very important issue that all types of family financial transactions need to be clearly documented, addressed in writing and clear understanding established on both sides.

Our Team has extensive experience in all aspects of Family Law and laws relating to families so we can assist you in this matter.

Setting the Terms

To avoid future problems, we strongly recommend to clients that the terms of the loan be reduced to writing and signed by the parties in a formal agreement.

This may seem quite extraordinary for some happy families and may even be received with resistance by some. However, when you consider some of the possible scenarios, the practicality and sensibility of such an action is completely justified.

A very typical scenario we come across, plays out as follows:-

  • Mum and dad lend their child money (it can be anywhere from $20,000.00 to $200,000.00) in order to help them buy a house.
  • There is nothing in writing establishing the terms of the loan e.g. the term of the loan, is interest to be charged, how it is to be repaid (fortnightly, monthly or annually), whether it has to be repaid on demand, is there any security given for the loan, etc.
  • The child goes rogue and refuses to pay the money back.
  • The child, through bad decisions, sickness, job loss or whatever loses the house and the parents’ money with it.
  • The child’s marriage breaks up and the spouse claims that the money given by the parents was in fact a gift, not a loan and therefore not liable to be repaid.
  • The parents own circumstances change whether it be through ill health, job loss or retirement such that they need the money back from their child for their own circumstances and the child refuses to repay it.

Making a bad situation even worse, parents can also act as guarantor over loans made by the children for the remainder of the home purchase, putting themselves in a liable situation if the above scenario occurs.

So when it comes to lending money to a child or another family member, don’t let your heart rule your head. Put love and affection to one side and consider sensibility and practicality. If you are lending money to your child protect yourself from unintended consequences by drawing up a specific loan agreement.

You may also like to review our resources on Conveyancing, which cover the steps of buying property including financial processes.

If you are considering lending money to a child or other family member, talk to us about preparing documentation to protect both yourself and the recipient from misunderstanding and misadventure. For more information, please contact John McLaughlin, McLaughlin & Associates Lawyers, john@mclaughlinlawyers.com.au 07 3808 7777

First Home Buyers Borrowing from Parents

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Pitfalls of First Home Buyers Borrowing from Their Parents

With property prices on a seemingly unstoppable rise and increases in income not really keeping up with the costs of living, it’s not surprising that many young first home buyers have trouble saving even the deposit for their first home purchase.

On the flip side, with interest rates at all-time lows, and very little return on their savings, it’s not surprising to see many parents, very generously, assisting their children to purchase their first home.

Whether children and parents, siblings, aunts and uncles and nieces and nephews, grandparents and grandchildren – extending a loan to a family member is an important issue and once which needs to be addressed formally to avoid potential problems for both parties.

First Home Buyers Shouldn’t Overlook the Paperwork

Buying property can be a whirlwind experience and in perhaps the idea to borrow money from parents or another family member emerges as a last resort or a last minute option.

In the rush and pressure-cooker environment of the property purchase it’s easy to overlook getting an agreement in writing with your parents or whoever you have borrowed from, regarding the loan.

It can often be embarrassing and awkward to raise the issue themselves, so parents, grandparents and other family members might just brush it off as unnecessary because you are “family after all”. However, our experience has proven that these types of transactions and the understanding around them need to be in writing signed by all parties so that everyone knows where they stand moving forward.

After all, it is a financial transaction and as with loans from financial institutions, it should be documented to cover the interests of both parties.

Clear Understanding Clears the Way Forward for First Home Buyers

Everyone, especially you the borrower, need to fully and clearly understand the nature of the loan being made to you. And that starts with a very frank and honest conversation with your parents or grandparents and follows with drawing up of a formal agreement, ideally with the assistance of a lawyer such as ourselves.

What First Home Buyers Need to Understand:

  • What is the term of the loan? When do your parents expect you to have repaid the loan
  • When is it to be repaid? Do they expect you to make monthly or weekly repayments commencing immediately or from some set date in the future
  • Is it to be repaid by way of a lump sum or is it to be repaid just like a bank loan by fortnightly or monthly repayments?
  • Is interest to be charged and if so how much, is it a fixed or variable rate? Do your calculations so you have a full appreciation of exactly how much you are borrowing and ensure it is your best option
  • If your parents’ circumstances change can they ask you to repay the loan on demand ?
  • Is security to be taken out against the loan?
  • What happens to repayment of the loan if you and your partner separate and the loan was made to one or both parties jointly?

All these aspects should be addressed in the written agreement, which should be formally drafted by a lawyer and signed by all parties.

Unforeseen Circumstances First Home Buyers May Encounter

While a loan from mum and dad may seem a good idea at the time, things change – it’s a fact of life. And you need to be prepared for the unexpected to ensure both yourself and your parents interests are both respected and met.

We have often seen cases where for example, the parents’ circumstances have changed due to ill health, loss of employment or retirement such that they require the money to be repaid. However, this was not the understanding of the child (borrower) of how the agreement was to be.

Not addressing these matters can result in a family divided in arguments over money.

Get the terms of the loan in writing so everyone knows where they stand right from the outset. Our team is highly experienced in drafting all types of agreements involving loans and property as well as in family law issues.

If you are considering borrowing money to buy your first home from your parents or another family member, talk to us about preparing the formal agreement to protect yourselves from family drama. For more information, please contact John McLaughlin, McLaughlin & Associates Lawyers, john@mclaughlinlawyers.com.au 07 3808 7777

Smoke Alarms & Conveyancing

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Smoke Alarms

With more than 10,000 house fires each year in Australia, the question is, are smoke alarms important?

Early detection of a fire through the use of a smoke alarm is vital in order to escape a house fire. That is why every home in Australia needs to be fitted with a smoke alarm.

Smoke Alarms Queensland

Is Your Home Compliant?

There are rules and regulations set out in legislation for each state in Australia, although smoke alarms are legally required for most households. If you are unaware if your house complies with the set standards you should get a licenced electrician to inspect your property.

Types of Smoke Alarms

The most commonly used smoke alarms in Australia are Ionisation and Photoelectric. The main difference between them is the process in which they detect smoke:

  • Ionisation alarms detect fire by using ‘smell’ once the fire has fully ignited.
  • Photoelectric alarms can detect fires using ‘sight’, this means they activate quicker than the ionisation smoke alarms.

Photoelectric are the most recommended smoke alarms as they provide you with more time to escape.

What’s the Law About Smoke Alarms in Queensland?

In Queensland legislation was commenced which requires every residence to be fitted with smoke alarms in all bedrooms of the home as well as in hallways or between areas containing bedrooms. It also requires smoke alarms currently residing in homes that are less than 10 years old to be replaced once they expire. These new amendments to the legislation allow people to be alerted to house fires as early as possible, which then gives them the best possible chance of survival.

Any existing smoke alarm being replaced from 1 January 2017 must be a photoelectric-type alarm which complies with Australian Standard 3786-2014.

REIQ Contract – What do Buyers Need to Look For?

REIQ contracts are used in a majority of property transactions across the state and was created in partnership with the Queensland Law Society. This contract includes a smoke alarm installation check-box which must be filled in by the seller. Buyers need to ensure that this box is ticked before they sign the contract.

What are Owner’s Obligations to Tenants?

  • Install smoke alarms;
  • Test and clean the alarm 30 days prior to the start of a new tenancy;
  • Replace each battery that is finished or almost finished;
  • Replace the alarm before the end of its service life, or replace it immediately if it has reached the end of its service life (10 years).

What are Vendors are Required To Do?

If a property is sold in Queensland, the vendor must lodge a Form 24 with the Queensland Land Registry. This form informs that smoke alarms are installed and notifies the purchaser. This requirement means checking of smoke alarm installations is a vital part in selling or buying a residence in Queensland.

What if a Home Doesn’t Have a Smoke Alarm?

Smoke alarms are compulsory in Queensland. Therefore, failure to install a compliant smoke alarm will be an offence under the Fire and Emergency Services Act. More information can be found on the QFES website.

If you have any enquires contact McLaughlin & Associates on (07) 3808 7777.

The Reality of Paw Workplace

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I Dub Thee, Sir Henri

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Logan’s New Zoning Laws

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Property Settlement Rights of the Non-Bankrupt Spouse

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One area of Family Law that is little-understood is settlement of property when one of one spouses or de facto partners has become bankrupt.. If your spouse or de facto partner is in this predicament, it does not always follow that third-party creditors will get all of the bankrupt’s assets.

The court needs to balance the competing interests of the non-bankrupt spouse against the interests of the bankrupt’s creditors.

In the event of bankruptcy, it is still the case that the non-bankrupt spouse can make a claim for an equitable division of the assets of the relationship.

Administrators vs Adjudicators

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Administrators vs Adjudicators

How does an administration impact on debts due under security of payment legislation?

A recent NSW Supreme Court decision is a reminder that the “moratorium” philosophy for companies in administration will usually be given precedence over enforcement action by creditors, including those creditors seeking to avail themselves of rights under the Building and Construction Industry Security of Payment Act 1999 (NSW) (and by extension, equivalent legislation in other jurisdictions).

Building compliance new requirements

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Building Compliance: New Requirements

From that date, new buildings will require the installation of fixed or lockable devices or strong screens on windows located more than two metres from ground level. The proposed fixed or lockable devices will allow a window to only open 12.5 centimetres, preventing a child from climbing through. Any proposed screen must be of “sufficient strength”, however there is no guideline as yet as to what strength is sufficient.

It is important to note that the installation of lockable devices or strong screens on windows is NOT required for existing buildings. The NCC applies to new constructions only. Owners Corporations are not required to retrofit their windows.

The Duty to Cooperate in Resolving Personal Injury Claims

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Give and Take: The Duty to Cooperate in Resolving Personal Injury Claims

The decision in Cameron v RACQ Insurance Limited [2013] QSC 124 is a useful reminder that the broad general duty upon claimants and insurers to cooperate with one another is not always confined to the particular matters stated in the legislation.

This case considered a provision in the Motor Accident Insurance Act 1994 (Qld) (MAIA). However, the Workers’ Compensation and Rehabilitation Act 2003 (Qld) contains comparable provisions which could be similarly interpreted by a court.

Implications

In this decision, the Court emphasised the need for insurers and claimants to comply with their overarching duty to cooperate with one another in resolving personal injuries claims, and indicated that this duty may extend beyond disclosure of the specific information/documentation referred to in the legislation.