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Money

by Jacqui Brauman Jacqui Brauman No Comments

Lending Money to Friends and Family

While you want to be generous in good times, and help a friend or family member out when you can, unfortunately money can ruin relationships.

If you’re lending money to a friend or family, they are probably going to consider it a gift. Or at very least, not think that paying you back is a priority. It will only happen when they end up with some extra money (which is usually never).

But they’re legally right to think the money is a gift. 

lending money

It comes back to contract law, and that two people entering into an agreement need to intend that it is legally binding. Friends and family members don’t usually think an agreement between them is legally binding – they think of it as a lesser obligation.

So what do you do, if you want to get paid back?

If you lend money to friends or family, you need the agreement to be put down in writing, and for both of you to sign it. Without this, the money will be considered a gift, and you will have no legal grounds to try to get it back.

When the arrangement is in writing, it confirms that you both did what the agreement to be legally binding, rather than just a gift.

What needs to be in the agreement?

The written agreement can be simple, but needs to be clear. You are at least going to include:

  • the name of the person lending the money (your name)
  • the name of the person getting the money
  • how much money
  • maybe, what they are using it for
  • when they need to pay it back by
  • whether they are going to pay some instalments
  • the interest rate, if you want to charge interest
  • the date
  • both need to sign.

What do you do if they don’t pay the money back?

Just like a personal loan, you would be able to sue them for the money. But this is a bit extreme, so what options do you have first?

Well, you could talk to them first, and agree to extend the loan, if they need more time. You would have to have a written agreement of the extension.

You might be able to change the terms of the payment. Maybe they have a house that they will sell in a couple of years, or something else of value. If they agree that you can get paid when the house or the thing sells, ask them if you can put a caveat or charge on the property. 

A caveat on real estate, or a charge on personal property, makes sure it cannot be sold without you knowing. And if you know they’re selling it, then you won’t agree to removing your caveat or charge unless you are paid. 

You could also consider using a dispute resolution service. This might be free or paid mediation. Or instead of making a claim in court, you could make a small claim in your State Civil and Administrative Tribunal which can be far cheaper and easier. 

So if you’re lending money to a friend or family member, then make sure to have the agreement noted down on paper, and have them sign it.

by Jacqui Brauman Jacqui Brauman No Comments

Superannuation succession for blended families

Mark and Jenny are married. Both of them had previous marriages, and Mark has no children from his previous marriage, Cara and Chris who are now both adults. Jenny has a son, Lachlan, who is 12 years old and lives with her and Mark. They have no children together.

After his first divorce, Mark has very few assets. He was able to retain his superannuation with AustralianSuper, an industry super fund. He and Jenny have bought a house together, jointly owned, and mortgaged up to 70% of its value.

superannuation

Mark has $600,000 in his superannuation fund, and has life and total permanent disability insurance cover for a further $750,000. He would like to divide his superannuation benefit between Jenny 60%, Cara 20% and Chris 20%. Remember, superannuation is not an estate asset that can be dealt with under a Will, unless Mark makes a binding nomination that all his death benefit goes to his estate.

Without a binding nomination to AustralianSuper, the trustee of the super fund is likely to determine to leave the majority of the superannuation (if not all) to Jenny and Lachlan (as a financial dependent and step-child). If Mark wants to ensure Cara and Chris get some of the benefit, he will need to make a binding death benefit nomination. It is important to find out from AustralianSuper whether the binding nomination can be non-lapsing, or whether it lapses every 3 years and Mark needs to remember to redo it. There is a risk that the binding nomination would lapse if Mark forgets to redo the nomination, and his own children could miss out. 

Out of Jenny, Cara and Chris, only Jenny would be within the definition of a death benefit dependent for tax purposes. Cara and Chris would need to pay part of the benefit that they receive as tax, at the income tax rate that they otherwise earn. They may not each receive an equal amount after tax. 

If Jenny died before Mark, Mark would like to have Lachlan receive part of the superannuation. But if Jenny was dead, then Lachlan would no longer be a ‘child’ of Mark (as he was only a step-child under the definition whilst his mother was alive). However, if Lachlan is still a minor and still living with Mark, then Lachlan would likely fall within the definition of a financial dependent instead, so Mark could nomination Lachlan in that situation.

Mark has given Jenny a power of attorney if he loses capacity. If he loses capacity, he could be entitled to the insurance cover associated with his benefit. Jenny, as his attorney, could withdraw from his fund on his behalf prior to his death. This would render the binding nomination either useless (depending on how much was withdrawn), or would significantly deplete the amount of money that his children would inherit. This would either be a risk that Mark would have to take, or he could prepare a Will with a specific gift clause that tracks any superannuation and ensures it is equalised between his children.

For more on money or estate planning.

by Jacqui Brauman Jacqui Brauman No Comments

Offering vendor finance

So you’re selling your house, investment property or business? The person you’re negotiating with to buy it from you doesn’t have enough money to pay you what you want. Either the deal falls over, because they cannot pay you your asking price, or you can get creative and offer to help finance the deal for them. But vendor finance may be your solution.

If you don’t know what vendor finance is, read this first.

There are two prime ways in Victoria to offer vendor finance. Both have their advantages and disadvantages, so it really depends on your circumstances and what you feel most comfortable with. 

Terms contract

With real estate, you are able to enter into a long term Contract of Sale that involves instalment payments, and the purchaser taking possession of the property before making the final payment. 

You must pay out your existing mortgage to be able to enter into such an arrangement, or at least pay the mortgage off with one of the first instalment payments before the purchaser takes possession of the property. 

When the purchaser takes possession, other than your contractual rights, you can take security over the property in one of two ways:

First, you can retain the Certificate of Title. You don’t register any Transfer of Land, and you remain the registered proprietor of the property. The rates will still be in your name, so you will continue to pay these until a final settlement. 

Alternatively, if you don’t want to remain the owner, you can register the Transfer of Land, so that the purchaser is the registered proprietor of the property. You would then register a mortgage over the property based on the terms Contract of Sale. The purchaser couldn’t sell or otherwise deal with the property without your consent, and you would have rights to recover the property and resell it if the purchaser failed to pay you (just like a bank mortgage). You would also have your Contract of Sale that you could sue for damages under, if the purchaser failed to pay. 

Mortgage

Instead of taking a mortgage under a terms Contract of Sale, you could just settle as usual on the Contract (after 30 or 60 days), and then you would take the position of the bank. You would sign loan documents which would entitle you to instalments and interest over a particular period. You would then rely on that loan to register a mortgage over the property.

These methods offer much more security when you are dealing with real estate. If you are dealing with a sale of a business, you could negotiate a payment by instalments under the Contract of Sale. You could specify how you wanted to secure those payments, whether the Contract gave you a right to take over the business again, or whether you were allowed to register a security interest on the Personal Property Securities Register (PPSR) over stock or generally over the assets of the business. 

Alternatively, you could enter into a commercial loan arrangement, with or without some negotiated security, as you could just rely on the terms of the loan agreement if the purchaser failed to pay.

For more on buying and selling real estate, click here.

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