I read a recent commentary in the newspaper where a young couple had separated, and in the process had to sell their family home.  The parents of the woman involved had given the couple a significant amount of money that allowed them to purchase the property.

On separation, the man argued that this money was either a gift to the couple, in which case it was owned equally by the couple divided equally on separation, or it was a loan only to their daughter and he was not liable for it.
The couple had advised their bank that the money was a gift, because their bank did not want them to be liable for further lending which would limit their debt repayment capacity.  However, in a separate document all parties had recorded that the money advanced was a loan by the parents to the couple, and repayable on sale of the property (if demanded then).
These sorts of arrangements are becoming more common, mostly because of the inflated housing market in Auckland.  Further, banks are tightening their lending criteria, which is leading to home buyers having to look at other funding sources, and usually it is the parents who are the first port of call.
In this particular case, the parties had recorded the arrangement in writing.  They agreed that notwithstanding the information provided to the bank, the money advanced by the parents was a loan to the couple.
From the parents’ perspective, it is critical that the documentation records the advance as a loan.  It is particularly important if the parents wish to see their money ever again.  It is possible for gifts of such a large amount to be given without any tax implications, but once you have given something, it is owned by the recipient and it is difficult to try and take back the gift.  
We expect arrangements of this nature to be more commonplace in the years to come.  Liability under joint loans like this is usually joint and several.  That means that the man in this case could be solely liable to his ex-partner’s parents for the full amount of the loan, but he can then claim his ex-partner to be liable for her share as a relationship debt.
Most parents do not want to sue their daughters or prospective sons-in-law for outstanding loans, but at least they have the ability to do that if it is a loan, and not a gift.
A final comment on an issue to do with Kiwisaver and wills: a larger number of young people have more than $15,000 in their Kiwisaver accounts which is the threshold for obtaining a grant of probate in the High Court upon the death of that party.  Accordingly, young people who believe they do not have assets, but who might have more than $15,000 in their Kiwisaver account, should consider putting together a simple will to avoid a lot of hassle and cost upon any untimely death.

Schnauer & Co, 222 Kitchener Road, Milford  
09 486 0177   www.schnauer.com