Helping an untrustworthy son without blowing your retirement funds

November 27, 2018 Madsen Law

Imagine this. Your son’s business is struggling. Your son tells you he really needs a loan as soon as possible. He promises to pay you back and to definitely look after you in your old age. In response to his plea you transfer $98,000.00 to your son’s business account, followed by 12 more advances over time totally $286,000.00.

Imagine your surprise 3 years later when you ask for your money back, because now you need it, and your son replies with, “What are you doing? Why are you demanding repayment all of a sudden? Mum always said don’t worry about the money, just take care of us in retirement”.

This was the situation facing Barry and Lorraine Berghan who had to sue their son in the District Court because he refused to pay back the money they loaned to him. The son claimed that there was never a proper (binding legal) contract with his parents, because he didn’t have to repay the money, he only had to take care of them (whatever that meant) in their old age, something he fully intended to do.

The unfortunate Berghans lost the case in the District Court, but finally obtained judgment on appeal in the Court of Appeal against their son.

The case highlights the potential pitfalls of these sorts of loose family arrangements including:-

1. The agreement was made orally only. This meant the Court had to hear evidence of what was said, and reconstruct what had been agreed to between them;

2. It can be a difficult task for the Court to determine is this a case one of parental concern and charity, or is this intended to be a legitimate loan which must be repaid?

3. Who were the loan moneys advanced to in the first place (so who is liable to repay them?), the son or his company?

In this case the District Court hearing and the Court of Appeal appeal costs were probably in excess of $80,000.00.

As an alternative to this is the Bergan’s could have asked a Solicitor to prepare a properly drawn “Deed of Acknowledgement of Debt”, which may have cost them in the vicinity of $1,800, or 2.25% of their future legal bill. That Deed may also have avoided permanently rupturing the family relationship. Who can put a price on that?