How Advisors Can Protect Clients Who Borrow From “Mommy and Daddy’s Bank”


Parents may want to help, but don’t know they need to protect their money. If a group of relatives, for example, lends the down payment, but does not document that it is a loan, then when the couple separate, they are part of the marital property and are divided into two, even if one side contributed all the money.

“Typically, one person gets a windfall, while the other loses equity,” Musson said. “Parents are losing quite a lot of money and now the kid is behind the eight again because they want to try to get back into the real estate market, but now they’re trying to get financing and buy someone out. who contributed nothing to the family home.

This is a problem because, according to Statistics Canada, 50% of those 33% of new buyers end up breaking up. Musson estimates that it is actually 60% since Statistics Canada only counts divorce rates and not cohabitation agreements that end. She has seen a 10% increase in marriage agreements, or marriage contracts, which still leaves many couples unprotected.

Musson urges counselors to revisit these points with their clients if they hear their families are considering the move.

“Make sure parents recognize the risks that might arise if they lend or donate money, as it can have a significant impact on someone’s net worth,” she said. “Most people don’t even think about it, and then they always come to me and ask me, ‘Why hasn’t anyone told me? “”

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