When parents lend or give significant sums to help their children enter the property market, the intention is often to provide long-term security. However, without proper planning and written agreements, this support can create complications. In some cases, families end up in legal battles, and parents risk losing retirement income or seeing funds redirected during a divorce settlement.
In today’s housing market, financial help from family is not only common but often essential. Known as the "bank of mum and dad," many young couples rely on parental contributions to close deposit gaps or secure loan approvals. This trend has also led to a growing number of legal challenges when relationships fail. The main issue is whether the money was a gift or a loan.
When parents provide a large sum such as $500,000, the financial and legal implications are serious. Centrelink imposes gifting rules that affect pension entitlements. Amounts over $10,000 per year or $30,000 over a five-year period are still counted as assets. This means financial support given today could reduce pension payments for years. If the money is a loan, interest earned may be taxable. Without a formal agreement or repayment schedule, courts might treat it as a gift.
To avoid confusion and legal disputes, experts recommend creating a written loan agreement or registering a formal mortgage. A binding financial agreement between the couple can also help set boundaries for the contribution. These must be drafted by separate legal advisors and can be expensive, but they offer a clear legal framework. Without formal documents, courts often base decisions on the timeline of events and the behaviour of everyone involved.
Communication is also essential. When family members offer financial help, all parties—including the couple and any siblings—should be aware of the arrangement. Miscommunication is common, especially if one partner was not involved in the decision or unaware of the documentation. Clear discussions from the start can prevent conflict if the relationship ends.
Families should also be aware of how loans affect borrowing capacity. Some banks will not accept parental loans unless the main mortgage is fully secured first. Working with a mortgage broker or choosing a suitable lender can help ensure financing goes ahead as planned.
Financial support for children is generous and often necessary, but it must be balanced against long-term risks, retirement needs and the possibility of family tension. Careful planning, legal clarity and upfront discussions can protect intentions from turning into unwanted outcomes.
