It’s been tough for first-home buyers in recent years.

With Auckland house prices rising rapidly and banks’ lending policies becoming more and more conservative, many New Zealanders find that the amount they need to save for their deposit is quickly falling out of their reach. For these reasons, it is common for today’s first home buyers to receive financial help from their parents to purchase their first home.

A new study from New Zealand bank, Westpac, reveals more than half of New Zealand parents are willing to help their children to buy their first home. Only one third of parents expect their children to pay their money back.

The bank of mum and dad is becoming a popular model for first-home buyers. But, sometimes relationships fail. Consequently, a dispute may arise on how to split their parents’ money, if their child divorces their partner.

That’s why in this week’s blog, our guest expert in property law, Joy Yuan, discusses the difference between a gift and a loan when parents help their children. This will help you to understand the best way to protect the money that your parents help you. 

How to protect the money your parents help you for buying your first home, before you divorce

Video Timeline

1. What’s the risk of parents gifting cash if their child divorces? -- 01:43

2. How to legally protect the money that parents help their children: loan documentation -- 03:15

1. What’s the risk of parents gifting cash if their child divorces?

According to the New Zealand Relationship Property Act, married, civil union and de facto couples who’ve been together for at least three years are covered by the equal-sharing rules in the Act. When their relationship ends, their property will be divided equally between them. There are exceptions to this rule, however.

There are two ways for parents to “give” money to their children – gifting or lending.

Parent gifting is the most straightforward way that parents can help. Without any clear plan on how this will be dealt with in the future, parents need to be careful that their gifting money would be split with their child’s partner if their child divorces. There is no legal requirement for their child to repay the money. Considering this reason, a legally defined loan can be a good option for legal protection.

2.How to legally protect the money that parents help their children: loan documentation

If parents are considering giving their child financial assistance to buy a house, they should first engage an independent solicitor to ensure that the nature of the lending/gifting is properly documented. Their children need to have their own solicitor to protect their interests, too.

The solicitor will draft a loan document to legally protect the parents and their child. Once the loan documentation is signed and dated by all the parties involved, the money can be clawed back if the child splits with their partner.

In addition, banks require legal documents to record the intention of the money, that is, whether it’s a gift or a loan. If it’s a loan, banks will need to ensure that the child can’t repay the loan from their parents until their home has been fully repaid.

Loan documentation gives parents legal protection when helping their children buy their first home.  

Need an excellent solicitor? Here’s why you should choose Joy Yuan

As a senior solicitor at Turner Hopkins, Joy has extensive expertise in commercial and property law. Her strong commercial and business sense ensures she gives the most professional and practical advice to all her clients.

Joy loves challenges and always ensures clients receive their advice in a timely and effective manner. She is highly recommended by her clients.

For all these reasons, we highly recommend you choose Joy to be your solicitor. You can contact Joy via email: joy@turnerhopkins.co.nz, or phone: 09 975 2624.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

Your first home buying journey starts here. With our simple to follow tips, you’ll be on the road to buying your first home. As professional mortgage brokers, we’re here to guide you through each step of the process - from planning, getting a home loan pre-approval, house hunting and your big settlement day. Give us a call today on 09 930 8999.

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