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Family bailout – should you or shouldn’t you?

I have been asked to put up money to help out a relative whose company could go broke. He is a nice bloke and had bought a house for his mum and is worried that if he goes belly up, his mum might lose the house. It’s worth around $250,000 and we’ve been asked to help out by buying the place. What do you think?

This is a tricky question and I’d recommend getting legal advice before you move. Here are a few reasons why I think you firstly need a lawyer, and then maybe a financial planner or accountant.

My worry is that the sale might not be seen as an arm’s length transaction. The creditors of your relative’s company could argue that this was a stunt to protect or hide the relative’s assets. If the place was auctioned and you bought it then that would be better than a direct sale at an agreed price. This is why I suggest getting legal advice.

If you go ahead, I hope your relative’s mum can pay rent because then you could access tax deductions if the rent does not cover your borrowing costs. It’s a really nice thing you might be doing but make sure it does not come back to bite you. Get legal advice for sure!

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. 

Published on: Tuesday, April 13, 2010

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