Court deals brutal blow to couple who lent adult daughter $163,000

A British couple have been dealt a devastating blow by a court, which found that they had gifted, not loaned, their daughter £90,000 (AU$163,000, US$123,000) and had no right to its return.

In a case that underlines the importance of establishing contracts even in financial transactions with close family members, David and Glenda Joy took daughter Lucy to court after she refused to repay what they said was a loan. In short, the couple had helped Lucy fund a legal battle over her grandmother’s will and eventually pay a settlement to her siblings. They made a verbal agreement that she would eventually repay them, the couple said.

When she failed to repay them, the British couple took their daughter to court to retrieve the cash, but the court decided that the sum was indeed a gift as Lucy claimed.

In an interview with the Mail on Sunday in the UK, David Joy admitted that he had never asked his daughter to put anything in writing. “You trust your children, don’t you? Why would you get them to write an IOU? But it’s cost us everything,” he told the newspaper.

Read more: Three big questions to answer before opening the Bank of Mum and Dad

Wife Glenda agreed, saying the couple regretted their “stupidity”. “I should have said, ‘sign something’,” she said.

The Joy’s case is one of many in which older parents give or lend money to their adult children, only to be left high and dry when they seek to have it repaid,.

In March 2017, a Brisbane man, Murray Berghan, was told by a court that he did not have to repay his parents, Barry and Lorraine Berghan, more than $280,000 they had lent him between 2009 and 2013. The court found that although the son had acknowledged on many occasions in emails that the money was a loan, he was speaking only in a moral sense and not because there was a legally enforceable loan agreement.

Fortunately for the Berghan parents, the Court of Appeal found that the original decision was in error, and ordered Murray Berghan to return his parents’ money plus interest. But lawyer Brian Herd told the Courier Mail that the case demonstrated why it was key that financial transactions between family members be formally documented.

“It might not sit well with parents to document their financial relationships with their children, but this is a salutary and expensive reminder of why they should,” Herd said.

Would you be comfortable with creating a legal loan agreement if lending money to your adult child? Have you suffered a rip-off like that of the Joys or the Berghans? Were you able to recover your money?