Dave Ananth says when a debtor cannot fund a realistic resolution alone, another balance sheet can enter the discussion; the family’s

By Dave Ananth*

I deal with debt every day.

Tax debt. Student loans. Businesses that have fallen behind. People who want to resolve a financial problem but simply do not have enough money to do it immediately.

A serious debt problem eventually produces one practical question: Where is the money going to come from? Income? Savings? Sale of an asset? Refinancing? A bank or another lender?

And then there is another answer: “Let me ask my family.”

Sometimes it is a parent offering savings. Sometimes the family considers refinancing property. Sometimes siblings contribute. Sometimes money comes from relatives overseas.

There is nothing unusual about families wanting to help each other.

But when family money enters a debt discussion, it should not be treated as the end of the inquiry. It is often the point at which the inquiry needs to become more careful.

The question is not simply whether money can be found. It is whether using it will actually resolve the debt problem.

Finding money is not the same as solving the problem

With a substantial debt, the amount owing is only part of the exercise. There may be questions about what the person or business can realistically pay, over what period, what income and assets are available, what options exist with the creditor, and whether the underlying problem has been identified.

That is particularly important with tax debt.

Someone may owe Inland Revenue a substantial amount and assume the only solution is to find enough money to pay the entire balance immediately. It may not be.

Depending on the circumstances, the available response may include an instalment arrangement, consideration of hardship, or another form of negotiated resolution. The appropriate course depends on the debtor’s actual financial position.

The important point is to understand the available options before anyone makes an irreversible financial decision.

That matters especially when the proposed source of money is someone else’s retirement savings, family home, or borrowing capacity. The existence of family money does not necessarily mean it should be used.

Beyond the Bank of Mum and Dad

The Bank of Mum and Dad is usually discussed in connection with housing.

Family help may be a gift, a loan, a guarantee, co-borrowing, security over property, or simply allowing an adult child to live at home while they save. That assistance may help someone acquire an asset which remains on their balance sheet.

Using family money to deal with an existing debt is different.

A payment may remove a liability. It may reduce pressure. It may allow someone to move on. In the right circumstances, it may be entirely sensible. But it does not automatically follow that the payment is the best solution, or that the family can safely afford it.

The question is not only whether the family can find the money. It is what financial position they will be left in after providing it.

“I can find the money” is not the same as “I can afford to part with it”

A parent may have spent 30 or 40 years accumulating savings.

If they are still working, have secure income and substantial other assets, they may be able to assist without materially compromising their own position. If they are well into retirement, that may be much harder.

The money may later be needed for healthcare, home maintenance, living expenses or an unexpected emergency. Or it may provide the security of knowing there is a financial reserve if something goes wrong.

There is an important difference between these two statements:

“I can find the money.” and “I can afford to part with the money.”

Suppose an adult child needs $100,000. Their parents have $150,000 in savings. Technically, the money exists. But is it genuinely available without leaving the parents exposed?

What if it never comes back? What if the parents need it five years later? What if the business being assisted fails anyway?

Those questions are not arguments against helping. They are reasons to understand the consequences before the money is committed.

The legal debt may remain with one person. The financial risk may not

Unless someone else has guaranteed the debt or provided security, the legal liability remains with the debtor. But families do not always experience the financial consequences that way.

An adult child’s tax debt may become a parent’s concern when retirement savings are proposed as the solution. A business debt can affect the whole family when property is refinanced or offered as security. A student loan can become something parents and siblings collectively try to resolve.

The legal liability may not have moved. But the financial risk may have.

Family assistance can take different forms. It might be a gift. It might be a loan. It might involve a parent borrowing against property or providing a guarantee. Several family members may contribute.

All of those arrangements may produce money for the debtor. They do not produce the same consequences for the people providing it.

The risk may simply have moved somewhere else.

Does the payment address the underlying problem?

The harder question is whether the proposed payment solves the debt problem or merely postpones it.

If a business continues to lose money, family funding may defer the next crisis. If someone has substantial tax debt but has not corrected the cashflow or compliance issue that caused it, paying yesterday’s debt may simply make room for tomorrow’s.

A payment arrangement may provide time. A lump-sum payment may reduce immediate pressure. Neither is, by itself, a business plan or a financial recovery plan.

That does not mean family assistance is wrong. It means it should follow a proper assessment of the debt, the debtor’s capacity, the creditor’s options, and what resolution is realistically achievable.

The time to obtain that assessment is before—not after—the family has committed savings, refinanced a house, or guaranteed new borrowing.

The family balance sheet

Imagine two people with the same financial problem. They have similar income, similar assets and the same amount of debt.

One has parents with sufficient savings or assets to help. The other has parents who would be equally willing to help but simply cannot afford to. Same debt. Very different options.

Family wealth can affect people’s financial options long before anybody receives an inheritance. It can provide a house deposit, business capital, emergency funding, security for borrowing, professional advice, or money needed to resolve a substantial debt.

When family assistance becomes part of a debt solution, it changes the financial position of more than one person.

When someone says, “Let me ask my family,” the funding problem may not have been solved. Another balance sheet may simply have entered the room.

Before anyone reaches for savings, refinances a house or borrows more money, there is another question worth asking: What will it cost the family to say yes?

This article is general commentary, not legal or financial advice. Decisions involving family loans, gifts, guarantees or security may require separate legal and financial advice.

*Dave Ananth is a partner at Meridian Partners and a former Inland Revenue solicitor. His practice focuses on student loans, tax disputes and negotiations with Inland Revenue. His background, profile and contact details are here.