Legal rights

Family in financial strife

Updated: 05 Jan 2010
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Introduction

Is your partner or a close relative in financial strife? Is it costing you too? We explain your rights.

If you have a relative who is repeatedly taken in by fraudsters, has spending habits or debts beyond their control, or has gambling, drinking or drug problems, it's likely you'll be feeling the pressure. We outline some strategies for dealing with such problems.

Note: The quotes and experiences mentioned here are all real, but names have been changed to protect the privacy of the families involved.

Overview

"My mother started sending cheques away to Canada, the USA and UK in return for doing a page of puzzles, or buying jewellery which was junk," Kerri-Jane Wallis told us. "She would hide the letters from her family ... Over five years she would have sent away about $16,000 to $17,000, and there was no way I could stop her."

"I am seventy years old," Martha Nichols wrote to us. "My daughter asked me for a loan so that she could avoid bankruptcy. Since then she has not been able to gain employment, has gone on incurring debts, and is depressed. To date she owes me $96,000 (my retirement savings) and has not repaid a cent."

Financial problems tend to have a ripple effect. The Problem Gambling Foundation, for example, estimates that between 5 and 7 people, most of them family members, are affected by the behaviour of each problem gambler.

And the difficulties go far beyond just missing the odd power bill or credit card payment. Gamblers lose over $5 million every day, most of that through pokie machines in clubs and bars. Some gamblers are losing thousands of dollars a month.

Financial problems can go hand-in-hand with dishonest or unreliable behaviour, which in turn can contribute to job losses or relationship break-ups.

In some instances, the problem will be obvious, but in other cases it will remain hidden. If cash or assets start disappearing, a family member becomes vague about money or constantly asks for loans, or they conceal bank or credit card statements, you have cause for concern.

What you can do

Don't feed the problem

If a family member is constantly asking for loans, has nothing to show for the money, and you suspect it's going to something like a gambling, alcohol or drug problem, what should you do?

"If you keep giving them the money then you'll keep the cycle going," says Cynthia Orme of the Problem Gambling Foundation. She recommends that, as difficult as it is, you turn down the requests for cash.

Shirley Woodrow of the New Zealand Federation of Family Budgeting Services agrees. "The person has to get to the state where they realise that they have a problem ... saying "no" to constant requests for money is the kindest thing to do for a long-term resolution."

If the relative says they need groceries or clothing for their children, "go to the supermarket with them and buy the groceries, or buy the kids' clothing yourself," says Orme. "The worst thing in the long run is to turn a blind eye and ignore it - that just perpetuates the problem."

Check their entitlements

If a family member is regularly short of cash, and there's no reason to suspect a gambling or similar problem, check out whether he or she is getting all the income they're entitled to. They may be entitled to additional benefits, or child support payments. Or their employer or bank may be taxing them at the wrong rate.

If you believe your relative was misled over a financial deal or contract, or were pressured to sign a contract which is harsh or oppressive, they can take a claim to a Disputes Tribunal or District Court. Ask a lawyer for advice.

Protect yourself

However you choose to get involved to help a relative, don't jeopardise your own financial security. Keep your finances as separate as you can. The emotional stresses you face will be even harder if you face financial problems too.

If your partner has a problem, don't agree to extend debts such as the mortgage, and don't take on the gambling or other debts they've run up.

Keep your personal savings well protected. "I am certainly aware of couples where one has money on term deposit with strict instructions that no statements are to be sent to the home address and no information is to be provided about the funds to the person with the problem," Kiwibank's Bruce Thompson told us.

Keep personal issues separate

If the relative has a problem such as an addiction, split the problem from the person. It should be clear that you care about the person: it's just the drinking or drugs or lying or thefts which you don't like. Take care of your own emotional health and, depending on the circumstances, physical safety.

Loans

Lending money yourself

"Treat loans to adult children as you would loans to any other person," Martha Nichols says, speaking from the experience of not having loans to her children repaid. "Have it all signed and sealed. Include a copy with your will at your solicitors."

Guaranteeing loans

You may be asked to act as guarantor for a family member who wants a loan. As guarantor, you'll have to repay the loan yourself if the other borrower can't.

Mike Andahl thought being a guarantor was "just a formality" and was something "people do all the time". Andrea, who'd asked for his help, promised she'd refinance the loan after three months, so his guarantee would only be needed for that period. Mike didn't seek legal advice.

When she didn't refinance the loan, Mike felt very vulnerable. His home had become security for a debt of $25,000, including interest and charges, which he couldn't repay. Mike says he didn't understand what he was getting into.

Think very carefully before acting as guarantor, and talk to an independent lawyer. Make sure you see and understand all the details of the loan. Don't use your home - or anything else that you aren't prepared to lose - as security. And insist on the borrower getting budgeting advice about their ability to handle the loan responsibly.

Don't assume you can take control

Regardless of the severity of the problem, your involvement in another person's affairs should be as little as required. Stepping in and taking over everything isn't a good idea unless it's absolutely essential.

In any case, there are strict limits on your ability to step in. Even if you've been married for 50 years, you can't deal with any bank accounts or policies that are exclusively in your partner's name. Under the Privacy Act, banks can't even disclose another person's account balances to you.

Nor can you get involved just because someone has poor judgment. The law makes it clear that, except in very limited circumstances, people are free to squander their own money.

Kerri-Jane Wallis discovered this when she tried to stop her mother sending away money to scamsters. "There was no way I could stop her ... Even though I was her daughter, I had absolutely no power to stop her cheques ... Some days she would post away at least $200. I felt quite helpless knowing that I had no control over these scams at all."

Even people with conditions such as Alzheimer's disease are free to make major financial decisions provided they get independent legal advice. In the 1990s, a woman with Alzheimer's provided security for a business loan her son and husband had taken out. When they didn't repay the loan, she took court action to try to undo the guarantee she'd given. The court ruled against her.

If you have to step in

If you are convinced you need to step in, the best approach is a voluntary one, in which the person with a problem agrees to give up some control of his or her finances. One approach is for the wages or benefit to be paid to a bank account that only you can access, and for you to pass on a living allowance to the person who has a problem.

While that might work for some, Cynthia Orme points out that it might leave the person with the problem feeling resentful and feeling like a child. She suggests finding a third party such as a budget service to handle the money.

Powers of attorney

Another approach is to set up an enduring power of attorney. This is a document giving you power to act in someone else's name. There are two types of power of attorney, one covering personal care and welfare, and the other covering property.

Power of attorney over personal care and welfare takes effect only when a person becomes mentally incapable of understanding and arranging their own personal care. If you have power of attorney, your job will be to help deal with rest homes or hospitals, medical issues (with some exceptions), personal needs and so on.

If you have power of attorney over someone's property, you can write cheques, manage bank accounts and even sell their house, depending on the power you're given in the power of attorney document.

You can't use powers of attorney to benefit yourself (unless the document appointing you says you can). However, we've heard of cases where people have abused their powers. Dealing with situations like this can be very difficult and involve court action.

If you're granting powers of attorney over your property, it's worth considering limits on the attorneys' powers, or appointing two attorneys who can only act if they both agree.

Taking control through a court order

It is possible to get court approval to take over a family member's finances using the Protection of Personal and Property Rights Act 1988, but only if the court finds that the person lacks the capacity to understand, and to foresee the consequences of, decisions relating to their property.

Using a family trust

Many people use family trusts to provide for someone who can't handle their own affairs, or to protect family assets - a farm or home or business interests - from being lost. Instead of just handing over ownership of an asset, you put the asset into the ownership and control of trustees. These are often family members together with an outsider such as a lawyer.

What the trustees can and can't do is set out in the trust deed. They administer the assets or investments and on behalf of the beneficiaries, making payouts to beneficiaries as appropriate.

While trusts are often used to provide for children's education or protect their inheritances, they can also be used to protect assets from a family member who has alcohol, drug or gambling problems or is a compulsive spender.

However, you should only set up a trust if you have a clear understanding of its purpose and how it will work, and you should do it after taking advice from a lawyer.

Children and money

Contracts

Your 13-year-old comes to you with a problem. They've signed up to buy a play station and some games on hire purchase, but now they can't keep up the repayments.

There's a common belief that children can't sign contracts or, if they do, that the contracts can't be enforced. In fact, children can sign contracts at any age. While the contract can't automatically be enforced against the child, if it was "fair and reasonable" - if, for example, your child is money savvy, the price was fair and there was no pressure - a court can require them to honour the deal.

If they have problems meeting the payments, the answer may be for you and your child to talk to the trader concerned and work out an affordable repayment schedule.

Another option is to ask the seller to take back the goods and cancel the agreement. But don't expect to get all the money back.

Credit cards

Say a young person has left home but you're worried because they're not good with money. To give them access to emergency cash, you want to give them a credit card with a $1000 or $2000 limit. But how do you prevent them from increasing the limit and being stuck with much bigger debts?

One option is to request joint operating authority for the account so you have some control. Obviously, the young person would have to agree.

Another option is for the young person to become an additional cardholder on your account. The advantage is that the young person can't raise the credit limit. However, if your own card has a high credit limit, take a second card for this.

See our report on Young people and the law for more information about children's rights, relating to money.

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