Keeping Yourself Covered - Helping your Child Buy a Home

Miranda and Simon’s daughter, Miria, is a very fortunate young person. Miria is about to achieve what we are told is the unachievable in Auckland – she is excitedly buying her first home. She is fortunate because Miranda and Simon are able and willing to help her make this purchase. Dipping into their own investments, Miranda and Simon are giving Miria $120,000 of the deposit she requires. She will, however, be responsible for the mortgage.


Hearing about this over a couple of wines one evening with Miranda, I quickly switched into lawyer mode and started raining on Miranda, Simon and Miria’s parade.


“What will happen if Miria’s boyfriend ends up moving in?”

“Have you considered how you would feel if Miria, one day, separates from her future spouse or partner and they end up with half of the house and hence half your gift?”.


My questions rolled on as the colour drained from Miranda’s face and her glass rapidly grew emptier. What started out as a genuine desire to help their daughter get ahead was fast becoming more complicated and risky.


What can you do if you want to give your child financial assistance but don’t want his or her future partner or spouse benefitting from your generosity in the event of a separation? With housing affordability being a hot issue in all the major centres, this question is increasingly coming up.


“We’ll make her do a prenuptial type agreement” was Miranda’s first thought. It’s a good idea. However, its difficult for Miranda and Simon to certainty about this:


  • Once the money is paid out to Miria, Miranda and Simon will be unable to require Miria and her future partner to enter into a Contracting Out Agreement. Miria may see the sense in protecting her investment from relationship property claims but, once cupid’s arrow hits her, she may be unable to imagine the relationship ever ending.

  • Miria may find herself in a situation in the future where she doesn't do an agreement because she doesn't think her relationship is a de facto relationship only to find out the law says she is.

  • Perhaps Miria and her partner won’t want, or be able, to spend money on each having a lawyer to complete an agreement.

  • Perhaps life may just be busy and Miria and her partner simply don’t get around to it.

Whatever, the reason, there's every chance an agreement won't be entered into. Even if Miria does do a Contracting Out Agreement with a future partner, there's little Miranda and Simon can do to ensure Miria remains protected by regularly reviewing it.


“We’ll do it in a trust” was Miranda’s next solution. This solution is looked to by many. They decide to either form a family trust to make distributions to their children or their child forms a trust to own the home. Forming a trust, in itself, is a costly exercise and the trust will require ongoing cost and attention in order to prevent it being challenged in the future. Even if a trust is formed, this alone will not likely protect the monies or home from a future relationship property claim. Other steps, such as a loan agreement and/or a Contracting Out Agreement will still be needed. You will need more than one moat around your castle!


So what should Miranda and Simon do? The simplest and probably most cost effective thing to do is have a loan document prepared and signed. This will confirm that the money being advanced to Miria is a loan and not a gift. If Miria and a future spouse separate, the loan will be taken into account as a debt owed. The loan can provide that repayments are not required unless demand for repayment is made. On a future separation, Simon and Miranda can demand repayment to ensure half the monies don’t go off with Miria’s ex.


Got a Relationship Property problem? Then book a free, initial 15 minute consultation with us now.


Names and any identifying information have been altered to protect the privacy of individuals. The information in this blog is current at 30 July 2021. The information in this blog is general, educative information only. As such, it should not be relied on in place of getting your own legal advice.