Volume #16: How to Record Money from the Bank of Mum and Dad When Buying a First Home

Read Time: 4 minutes

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Introduction:

Are your parents helping you buy a home, but you’re unsure how to record their financial contribution? In this newsletter, we’ll walk through two common options:

1. a Deed of Gift (DOG) and
2. a Deed of Acknowledgement of Debt (DOAD).

To make things clearer, we’ll use the case study of Ernie and Bert, a couple who recently navigated this process.

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What this newsletter will cover:

The pros and cons of using a DOG or a DOAD to structure parental contributions when buying a home, and how each option impacts relationship property.

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What this newsletter will not cover:

We won’t dive into Contracting Out Agreements (COAs) or the broader details of relationship property law. If you’re curious about COAs, check out our blog for more insights.

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PROBLEM: Not Sure How to Record Your Parents’ Help?

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• Many first home buyers, like Ernie and Bert, receive financial help from family but aren’t sure how to properly document the contribution.
• If the money isn’t recorded correctly, it may become relationship property, meaning it could be split in the event of a breakup.

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RISK: Incorrectly Recording the Contribution Can Lead to Disputes

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• Failing to properly structure the contribution can create complications down the road, especially if Ernie and Bert, or couples in similar situations, split up.
• Without clear documentation, Ernie’s parents could lose control of the funds, and Bert might end up with a claim to part of the money.

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CONTEXT: Ernie and Bert’s Case Study – DOG vs. DOAD

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• The Scenario: Ernie’s parents want to contribute $120,000 toward the couple’s $600,000 home. The couple has heard of both a Deed of Gift (DOG) and a Deed of Acknowledgement of Debt (DOAD) but aren’t sure which is the best option.

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1. Deed of Gift (DOG)

• Ernie and his parents sign a DOG, and Ernie receives the $120,000 as a gift.
• The money becomes relationship property because it was used to buy a home shared with Bert.
• If Ernie and Bert break up and sell the house, they would split the proceeds equally, meaning Bert could claim half of the $120,000.

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2. Deed of Acknowledgement of Debt (DOAD)

• Instead, they could sign a DOAD, recording the $120,000 as an interest-free loan.
• In this case, the money is treated as relationship debt, and Ernie’s parents can claim the full amount back if the house is sold due to a breakup.
• This option ensures Bert wouldn’t have a claim on the money, and Ernie’s parents are repaid in full.

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SOLUTION: Which Option Should Ernie and Bert Choose?

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1. Use a DOG if:

1. The money is intended to benefit both partners equally, even if they break up.
2. In the event of a sale, both Ernie and Bert would split the proceeds, including the contribution from Ernie’s parents.

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2. Use a DOAD if:

1. It’s important that Ernie’s parents get their money back in case of a breakup.
2. The DOAD records the contribution as a loan, ensuring that Ernie’s parents are repaid before the remaining sale proceeds are divided.

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TL; DR - Too Long; Didn't Read

• Deed of Gift (DOG): The money becomes relationship property, meaning both partners benefit equally.
• Deed of Acknowledgement of Debt (DOAD): The money is treated as relationship debt, ensuring Ernie’s parents are repaid if the couple splits up.
• Use a DOG if you want the money to be shared, and a DOAD if you want it returned to the parents.