Most of us have experienced this – an urgent call from a family member asking for a loan or help to pay certain bills.
Many of us do not hesitate to help a family member in need by agreeing to help them. So, are you sure that the money you have given will be repaid? Is it really a loan or a gift?
Money given to a family member is sometimes given on an urgent basis or overtime but without either party seeking any legal advice or knowing their rights. The critical issue to determine is whether the money given to a family member is in fact a loan or a gift.
In a recent District Court of Queensland case of Bergham v. Bergham, the Court dismissed the parents’ claim that monies they had lent to their son should be paid back to them. Although the Judge found that the son had abused the parents’ generosity, the parents could not prove that they had a legally enforceable loan agreement with their son.
His Honour also held that a promise to pay the money back is a moral obligation rather than one which creates a binding loan agreement.
Things to consider when making loans to family members include, but are not limited to (1) whether or not the recipient of the money treats it as a loan or a gift from you; (2) when does the loan need to be repaid; (3) is interest payable on the loan and at what rate; (4) how will the loan be repaid, i.e. what if the family member then helps you when you move or helps you during your time of need without any direct financial assistance; should you seek independent legal advice; (5) should you seek financial advice as to the impact you may face having regard to say your pension.
It is also critical to note that loans made to family members or others that do not specify a term for the loan or are ‘at call loans’ are subject to the statute of limitations as to when a claim can be brought for pursuing payment.
Therefore, if you are requested to provide someone with financial assistance and you intend that assistance to be by way of a loan and expect that the loan will be repaid, then we strongly recommend that you seek your independent legal advice before advancing any money. Contact Mahendra Mohan on 1800 431 604.