Lending your kids money? This could save you from going to court
Around Australia, many family lawyers are on a delicate mission: helping parents and grandparents navigate how to help loved ones financially while still protecting their assets if there's a break-up.
It's becoming an increasingly common query from clients of a certain age, who want to subsidise their child or grandchild but also keep assets in the family if a relationship ends.
It's a fraught issue as Australia experiences an era of massive intergenerational wealth transfer, with an estimated $3.5 trillion in assets expected to be passed on by 2050.
There are three main options when transferring wealth: a gift (which offers little to no legal protection), a loan (which can be contested, especially if not properly documented) or the most robust legal option, the Binding Financial Agreement (BFA).
A decade ago, it was unusual to request a BFA for family wealth transfer. Now, many parents won't extend money to their children unless they and their partner enter into a binding agreement.
What is a BFA?
BFAs are powerful legal tools that can protect financial contributions when you hand over wealth (whether early inheritance, money for a home deposit or other financial support). They allow all parties to define in legal terms how specific assets will be treated in the event of separation.
They are enforceable under the Family Law Act and allow parties to contract out of the usual rules surrounding division of property. This is particularly useful in blended families, second or subsequent marriages, or when significant family wealth is involved.
A BFA must be signed with independent legal advice on both sides, which offers an extra layer of fairness, clarity and enforceability. But they are not without complications. Any situation where a legal document intersects with love, family and money should be approached with careful thought and expert advice.
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