Beware of family arrangements going awry – protect yourself!

September 28, 2022

A recent case of Leaver v Leaver gave us an all too important reminder of how crucial it is to document family arrangements. If family relationships go sour, having a properly documented plan to follow leaves little to interpretation, giving the family time to focus on trying to rebuild the relationship (rather than making it worse by fighting over what each person thinks the plan was at the time).

In Leaver v Leaver, parents Neal and Ellen had an arrangement with their son and his wife, Cory and Diana, to purchase a property which Neal and Ellen were to live in. The property was purchased in 1994 with Cory and Diana as the legal owners of the property.

Neal and Ellen claimed that the property was purchased in the name of Cory and Diana for asset protection reasons. Neal and Ellen claimed to have paid a $40,000 deposit when the property was purchased, with balance purchase price funded by mortgage in the name of Cory and Diana. Neal and Ellen asserted that the agreement was that the property would be theirs to live in for their life, with Neal and Ellen being responsible for the maintenance and upkeep of the property. Neal and Ellen undertook various renovations and improvements to the property and effectively treated the property as though it was theirs.

Neal and Ellen also had a daughter, Nicole. Neal claimed that around the time of purchase of the property he discussed with Cory that the property be bought in Cory and Diana’s name, but that Nicole would get her “share” when he and Ellen died.

It all went pear shaped when Neal and Cory’s relationship went sour in 2016. Cory and Diana then attempted to sell the property in 2018. Neal and Ellen promptly lodged a caveat on the property to prevent the sale of what they thought would be their home to live in until they died.

At the hearing, there were 3 main factual matters which needed to be resolved:

1. who paid the deposit when the property was purchased and what the agreement was for its payment;
2. who paid the mortgage for the property and what the agreement was for its payment; and
3. the extent of the renovations done to the property.

The difficulty with this matter was that the property was purchased in 1994 and Cory and Diana tried to sell it in 2018 – this is 24 years after it was purchased! Naturally, the recollection of events and what the actual agreement made in 1994 differed significantly between Neal and Cory. If the family documented the arrangement at the time they first agreed on it, relying on their memories from 24 years ago wouldn’t have been needed as there would’ve been a clear plan for them to follow. This would have also saved them a lot of time and money, and potentially prevented the dispute from being litigated at all.

Documenting the family arrangement would have allowed them to set out in black and white:

1. why the house was being purchased in Cory and Diana’s name;
2. who was responsible for the initial deposit and the ongoing mortgage repayments;
3. who was responsible for the property maintenance and any renovations done to the property;
4. who was responsible for the property rates, water and power charges and insuring the property;
5. who was allowed to live in the property, for how long and at what cost;
6. what happens if the occupants of the property move out;
7. in what situations could the property be sold; and
8. what is to happen on the death of the property occupants and/or the property owners.

We recommend you do not follow in the Leaver family’s footsteps. If you have a family arrangement, document it! The cost of a disputed arrangement will far outweigh the costs of documenting the deal at the time it is done.

Documenting a family arrangement allows you to protect yourself and your family members from such a dispute, allowing you to focus on mending soured relationships rather than worsening them.

If you need to document a family arrangement or need succession and estate planning advice, please contact a member of our commercial or estate planning teams.