Receiving Money from Your Parents for Your Home: Expert Tips You Need to Know

Here are your options:‍
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This summary does not discuss Contracting Out Agreements (COA) or Relationship Property. If you want to find out about COAs, then read this blog and check out Agreeable.

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Background and assumptions

For this example below:

1. the home bought by Ernie and Bert is Relationship Property;
2. Ernie and Bert do not enter a COA; 
3. all expenses and profits have been agreed to be split 50:50; and
4. Ernie’s parents get independent legal advice. 

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Ernie and Bert - Ernie’s Parents want to Help

Ernie and Bert have been together for 10 years and bought a newbuild property together for $600,000. Ernie’s parents want to contribute $120,000 for the 20% deposit. 

Ernie and Bert have heard about a Deed of Gift (DOG) and a Deed of Acknowledgement of Debt (DOAD) but are unsure which option is best for them. Here’s a summary of both options:

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Deed of Gift - DOG

• Ernie and Ernie’s parents sign a DOG and Ernie receives $120,000.
• Ernie and Bert use the money to pay the deposit for their home. 
• Ernie and Bert drawdown a loan of $480,000 from Sesame Bank.
• Ernie and Bert live at the property for five years but sadly break up due to irreconcilable differences. 
• Ernie and Bert sell the property.

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Bert would have a claim to half of the sale of the property (including half the deposit of $60,000/$120,000) because the money was used to buy Relationship Property.

A DOG should be used where the funds are intended to benefit both Bert and Ernie and all parties understand the money from Ernie’s parents will be considered relationship property.

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Deed of Acknowledgement of Debt - DOAD

Ernie and Bert and Ernie’s parents sign a DOAD that records the $120,000 as:

• an interest-free loan;
• relationship debt owed by Ernie and Bert to Ernie’s parents; and
• repayable on demand if Ernie and Bert break up and sell the house.

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• Ernie and Bert use the money to pay the deposit for their home. 
• Ernie and Bert drawdown a loan of $480,000 from Sesame Bank.
• Sesame Bank agrees to this arrangement so long as Ernie's parents do not register a caveat on the property and Sesame Bank’s mortgage has a first-ranking priority. 
• Ernie and Bert live at the property for five years but sadly break up due to irreconcilable differences. 
• Ernie and Bert sell the property and Ernie’s parents receive back $120,000 from Ernie and Bert as required by the terms of the DOAD.
• Ernie and Bert split the remaining money.

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A DOAD should be used if, in the case of a breakup, it is important the money comes back to Ernie’s parents and Bert does not have a claim to it.  

Any money received pursuant to a DOAD is a debt owed by Bert and Ernie and therefore (assuming they do not break up and stay together) is less favourable from their joint perspective, as they may have to pay it back in the future.

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Conclusion
TL; DR (Too long did not read)
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Using a Deed of Gift means any gifted money becomes relationship property. The money becomes relationship property when gifted to them both, or if gifted to Ernie when it is intermingled with a relationship asset (the house).
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Using a Deed of Acknowledgement of Debt means any money becomes relationship debt. If it is important that your child’s partner (e.g. Bert) does not have a claim to any money provided then a couple should enter into a Deed of Acknowledgement of Debt or a Contracting Out Agreement.

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