Living with the Family

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Clients sometimes ask me about selling their homes and putting the money into some form of joint housing with a member of their family. This "extended family" arrangement can be very successful. It gives a working couple a carer for children and it gives the elderly person someone to keep an eye on them and make sure they are well fed and secure.

However, lawyers see some of the ones that don’t work out. The common problem is that those involved (usually my older clients) have not had a good hard look at the things that can go wrong and what it will mean if it does not work out.

If you are an older person contemplating such an arrangement, questions you need to ask either yourself or others:

Who will own the real estate? Will it be owned partly by you or wholly by the family member? Remember that the owner of the land is the owner of everything built on it.

If you are putting money into a property but it is not wholly or partly registered in your name, then you are either lending or giving money to the family member.
If you are receiving a pension, this may affect your pension as there are implications of lending or giving money away to family.
If you are making a loan (and not an owner) then you need to have some written agreement that confirms it is a loan (and not a gift) and what is the position if you want your money back.

What if it does not work out?

Getting your money back will be the problem.
Whether you are a part owner or a lender, the money can usually only be found by selling the house. Are you strong enough to say to the family member that you want them to sell their house to pay you back. This may cause much friction in the relationship

Will I get all my money back?

If you have entered into an agreement with your family then you will have more certainty as to what you get back. You will have at least discussed the problem.
The most common problem is that often the property has not increased in value by the amount that you have paid for your flat or extension. If you pay $100,000 for the extension, this does not mean the whole property has gone up in value by $100,000. In a given suburb there is a limit to how much any property will be worth, no matter how big or luxurious. If the property is to be sold to pay you back, who is going to take the loss? You will want to get your $100,000 (perhaps with interest) back but that might mean your family will not get as much for the rest of the house as they would have before you came along. If they get what their house was originally worth, you won't get back all your money. What is fair?
On the other hand, if the property has gone up in value, who gets this increase. You might think you should because you consider it was your extension that increased the value. They might think they should because it is their property? What is fair?

What if money is to be borrowed from a bank to buy the new house?

If you are a part owner, you will have to sign a mortgage over the property. Are you prepared to go into a mortgage?
If your family does not pay, do you have the ability to meet the mortgage payments?
If they don't pay and you can't, the house will have to be sold. The bank will get their money before you. Where will you live then?

If this sounds negative, remember I have seen some that have gone wrong and my views must be colored by these. No one comes to tell me how wonderful the new living arrangements are. I have put this on paper mostly to jog people into thinking about what might go wrong. I hope this encourages people to have full and frank discussions with their family before they go into such an arrangement. It is my experience that family often avoid discussing difficulty questions as it can be confronting.

I hope this assists anyone contemplating “Living with the Family”.

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