Protecting Your Financial Help When Kids Buy Property

Helping your child buy a home can be a great financial boost, but it becomes more complex when a partner is involved. Parents contributing a significant amount like $550,000, must consider legal safeguards to protect their investment if the couple separates. Structuring the contribution as a secured loan rather than a gift can ensure that money isn't lost in a breakup.

Many parents in this situation initially consider buying the property themselves and renting it to their child and their partner. However, this approach comes with complications, especially if the parents are near retirement and don't want to take on extra debt. If the child can't qualify for a mortgage independently, having a financial agreement in place makes a big difference.

Financial and legal experts suggest creating a formal loan agreement, secured with a mortgage on the property. This ensures that if the couple splits, the loan must be repaid before any division of assets. Some banks may allow a second mortgage alongside the main home loan, but if not, lodging a caveat on the title is another option - though it offers less security.

Other ways to protect the investment include co-ownership agreements, binding financial agreements (pre-nups), or structuring ownership as tenants in common. Each option has its pros and cons, such as tax implications or the need for independent legal advice. While nothing is entirely risk-free, setting up the right legal structure can help ensure financial contributions remain protected.

Source: Australian Financial Review, JVM Lending, JP Morgan