Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 139

Take care when assisting parents financially

This article continues from Alex Denham’s, ‘Providing financial assistance to parents’, and is in response to a reader’s request to delve further into this little-explored theme. It focusses on what happens when circumstances change or where financial arrangements are challenged by other family members.

Parents are often giving a ‘leg up’ to their children, whether a gift to put a deposit on a house, guarantee a bank loan for a new business or the like. What happens if the ‘leg up’ is from the child to the parent, particularly in the event of marital or family breakdown? The following scenarios illustrate the main considerations:

Marital breakdown

Suppose a son has supported his parents by purchasing an investment property with them, and he has paid their bills and other essentials on an ad hoc basis. The son’s marriage has broken down. Will his now ex-wife be able to make a ‘claim’ on the assets or money given to the son’s parents?

The answer is mixed. The issue in a marital breakdown is a division of assets based on a number of factors and largely depends on the facts of the marriage, such as length, earning capacity of each spouse, whether there are children of the marriage dependant on one spouse and so on.

The paying of bills ad hoc in this scenario is unlikely to be included in calculating the ‘pool of assets’.

It is arguable that the investment property, as it is held as joint tenants, might not form part of the ‘pool of assets’. However, I am of the opinion it would be difficult if not impossible for the son’s share of the property not to be included in a calculation of the ‘pool of assets’.

This doesn’t give the wife a claim on the property however, when all the assets are being divided. I would be of the view that the value of the son’s share in the property would be included in calculating the pool and may affect how other assets, such as money held in bank accounts, are divided. 

Changes among siblings’ own financial circumstances

Suppose three siblings purchase a property for their parents to live in. What happens if, due to loss of employment, one of the siblings stops making the mortgage payments, or one wishes to exit and be bought out?

To answer these questions, it is essential to examine the agreement when the siblings entered into this purchase.

Unfortunately, few people think about this at the time of purchase but they really should. There should be an agreement in writing and with each party obtaining proper and independent legal advice. This may sound unnecessary in family situations, but it is not uncommon for people’s circumstances to change through no fault of their own, leading to family discord.

As I often say to my clients, if everyone knows the rules beforehand, then disputes later are minimised or avoided all together.

So the answer to these questions will depend on the agreement in place. If nothing is in writing, then what was discussed before the property was purchased cannot be verified. If no discussions were had, then it’s an even bigger mess.

Essentially, if there is a mortgage over the property then all owners will have agreed to be liable for the mortgage, usually jointly and severally, and one or all are liable. So if some siblings aren’t paying the mortgage then the other siblings will need to make up the difference. If the mortgage goes into default, it will affect all of the sibling’s credit rating.

If one sibling wishes to exit the situation, then usually the other siblings will buy their share. It is usually based on a market value of the property at the time of the sale and requires the agreement of all owners.

Can they sell to someone else? Yes, but only with the consent of the other owners. If there is a mortgage, then the mortgagee’s consent will be required as well.

If agreement cannot be reached, then I see little choice but for the property to be sold and the proceeds divided amongst the siblings. The obvious problem is that mum and dad will be homeless.

Planning at the beginning is the key to avoiding headaches and arguments at a later date.

Unequal contributions within the family and inheritance

Another common issue is where one child helps the parents out more financially than the other children. On death, one child may feel entitled to more of the estate. This feeling of entitlement however, is not entirely accurate when it comes to administering the estate.

The parents’ will should largely address these issues. If the child gave money to the parent, then that is a nice gesture, but it was a gift. It is not intended to be repaid by that child inheriting a larger portion of the estate.

If it’s a loan, then the loan should be in writing before death and be reflected in the parents’ will, recording that the estate will repay the loan.

A parent may leave a larger portion to one child over another to reflect the contributions made before death, but this situation usually causes more trouble than it is worth. It is likely that unless there was careful discussion and agreement before death, a claim on the estate by the child with the smaller portion will eventuate, which will lead to unnecessary stress and legal fees.

I again would say planning is the key with prior agreement as to what the money means and whether it will be ‘repaid’ by the estate of the parents.

If property is involved, then the child’s investment or loan to the parents should be reflected in the ownership. For instance, where the child owns a share of the property or there is a mortgage granted over the property in favour of the child, the death of the parents will not affect that child’s investment.

In the absence of documentation to outline the situation, in my view, the money will be treated as a ‘gift’ and recovery from the estate would be difficult if not impossible.

Summary

Not all situations are straightforward and each matter will be determined on the facts. Documents outlining the intention and agreement of all parties may seem unnecessary when family is involved, however, courts are full of family members fighting about money.

If everyone knows their obligations and rights from the beginning, in my experience, most disputes are quickly resolved, or avoided all together.

 

Melanie Palmer is a Partner of Palmers Legal. This article contains general information only and does not consider the personal circumstances of any individual. Professional advice should be obtained before taking any action.

 


 

Leave a Comment:

RELATED ARTICLES

Providing financial assistance to parents

Estate planning made simple, Part II

The legal fallout when a carer becomes a partner

banner

Most viewed in recent weeks

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Latest Updates

Investment strategies

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

Shares

Why the ASX needs dual-class shares

The ASX is exploring the introduction of dual class share structures for listed companies. Opposition is building to the plan but the ASX should ignore the naysayers and bring Australia into line with its global peers.

The state of women's wealth in Australia

New research shows the average Australian woman has $428,000 in net wealth, 40% less than the average man. This takes a deep dive into what the gender wealth gap looks like across different life stages.

Investing

The two most dangerous words in investing

Market extremes are where the biggest investment risks and opportunities lie. While events like this are usually only obvious in hindsight, learning to watch out for these two words can alert you to them in real time.

Shares

Investing in the backbone of the digital age

Semiconductors are used to make microchips and are essential to a vast range of technology and devices. This looks at what’s driving demand for chips, how the industry is evolving, and favoured stocks to play the theme.

Gold

Why gold’s record highs in 2025 differ from prior peaks

Gold prices hit new recent highs, driven by a stronger euro, tariff concerns, and steady ETF buying – all while the precious metal’s fundamental backdrop remains solid amid a shifting global economic landscape.

Now might be the best time to switch out of bank hybrids

In this interview, Schroders' Helen Mason discusses investing in corporate and financial credit securities, market impacts of tariffs, opportunities for cash investments, and views on tier two and hybrid bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.