The gift trap: why your parents' money is now your partner's property

The “Bank of Mum and Dad” is arguably the biggest lender in the New Zealand housing market right now. For many young professionals in Wellington, it is the only way to bridge the gap between a savings account and a 20% deposit.

The scenario is usually the same: You find the perfect house. You are $100,000 short. Your parents, wanting to see you settled, offer to transfer the difference. There is a hug, a transfer of funds, and a vague verbal promise that “you can pay us back when you sell.”

It feels like a family milestone. But legally, you may have just walked into a trap that could cost your family that $100,000.

The legal presumption: a gift, not a loan

When you separate from a partner, the Property (Relationships) Act acts like a blender. It takes assets and mixes them into a 50/50 pool.

The “Family Home” is the most protected asset in this pool. Generally, no matter who paid for it, the family home is divided equally after three years together.

This creates a massive problem for the “Bank of Mum and Dad.” If your parents transfer money to you and it is used to buy the family home, the law often applies the “Presumption of Advancement.” Without clear evidence to the contrary, the law assumes a parent intends to advance their child in life i.e., it is a gift.

If it is a gift, it belongs to the relationship. If you separate five years later, your ex-partner is legally entitled to half of the home’s equity, including the half funded by your parents.

“But we agreed it was a loan!”

I hear this in my office constantly. “My ex knows it was a loan. We talked about it.”

Unfortunately, in the heat of a separation, memories change. If your ex-partner claims, “I thought it was a gift to us both,” and you have no documentation, the Courts (and Family Court Judges) will struggle to find in your favour. A casual email or a verbal agreement over Sunday roast is rarely enough to overturn the presumption of a gift.

The fix: formalise the awkwardness

The only way to protect your parents’ money is to treat the transaction with the same rigour a bank would. You need a Deed of Acknowledgement of Debt.

This is a relatively simple legal document that:

1. Records the advance as a Loan. It explicitly states the money must be repaid.
2. Secures the debt. It can be registered against the property title (like a mortgage) so the house cannot be sold without paying Mum and Dad back first.
3. Requires both signatures. Crucially, your partner must sign it. This prevents them from later claiming they “didn’t know” it was a loan.

Alternatively, if the money is a gift but you want to ensure YOU get the benefit of it (not your partner), you need a Section 21 Contracting Out Agreement (a “Prenup”). This rings-fences the deposit as your separate property, ensuring you get your parents’ contribution back before the remaining equity is split.

Summary

It might feel unromantic to ask your partner to sign a legal document just as you are buying your first home together. But the alternative is far worse.

If you don’t document the “Bank of Mum and Dad” contribution, you aren’t just borrowing money. You are potentially gifting your parents’ hard-earned retirement savings to your future ex.

Protect the wealth. Get it in writing.