Family Loan Agreements

Family Loan Agreements

Many families provide financial assistance within their family group and good practice ensures that a Loan Agreement is in place. 

A Family Law case has highlighted that a Loan Agreement will not protect an asset from being included in a matrimonial property division if it is not ‘commercial’ in nature. 

In Sulo & Colpetti [2010], the Family Court found a $150,000 loan from a father to his son was not a liability due to a number of deficiencies. The loan had been provided in 1995 and no repayments or, in fact, any loan activity had occurred during the period of the advance. The Court noted that the Statute of Limitations rendered the loan ‘statute barred’.

Consideration - We recommend that family loan agreements are reviewed on an annual basis to ensure that they remain on foot and provide the asset protection features originally sought.

LOAN AGREEMENTS HOUSEKEEPING

When reviewing your Loan Agreement, does it include the following terms or features?

1. Is it registered as a 1st or 2nd mortgage or at the very least, is there a registered caveat?
2. Is the loan repayable at a specified date or following a specified event? Loans at call are not appropriate.
3. Are there interest terms in the Agreement?