Many parents help their children to get a foot on the property ladder if they have the ability to do so. The long-term legal implications of this though are rarely thought about. ‘It’s family, right?’…. so, no need to worry about anything going wrong?
At the risk of coming across as a cynical lawyer; things do, far too often, go wrong and I hope by sharing some of the difficulties that can arise it will assist families to take preventative measures, save costs and avoid ending up in bitter legal battles.
What problems can arise?
If you have provided your child with money to help them purchase their home and they are married (or later gets married) and then the marriage breaks down, complications can arise.
Is it clear what your intention was in respect of the money? Was the money a gift? Was the money a loan? Was it meant to be just for your child’s benefit or was it provided for the benefit of your child and partner as their family home, which possibly may house your grandchildren?
If you have lent your child a sum of money and years later they divorce, you may well be wondering who will get that money in the divorce proceedings. Even if you are not concerned with taking the money back yourselves, many parents will understandably want to ensure that their child retains that money and not their ex-partner.
In family law there is a wide range of discretion when determining how assets should be divided up in the event of a divorce. What is in the ‘pot’ for division can be very difficult to determine if there is no clearly evidenced form of intention.
Even if it can be established that money provided from you was to be paid back, the court may well regard it as a ‘soft loan’, unless there is clear evidence to the contrary. If it is regarded as a soft loan, less consideration (‘weight’), if any, will be given to it when working out a financial settlement between your child and their ex-partner.
It is not necessarily always as straightforward as simply looking at the terms of the legal ownership of the property or the financial contributions that were made towards the property. Often the starting point is 50/50 regardless, but there is no formulaic approach and each case is dependent on its own facts. Under family law there is the power to adjust the interest that each spouse may have in a property, taking assets from one spouse and giving to the other. So, just because one party ‘put in’ more money, it doesn’t mean that they would get the exact sum back upon divorce – and vice versa. Ultimately the needs of both the spouses, and any children they may have, must be met from the terms of any financial settlement based on the resources available.
If your child and the spouse they are separating from ends up in court proceedings you may need to become involved – that is becoming a party to those proceedings, or be invited to join / intervene. I will cover this scenario in part 2 of this blog series.
There are preventative measures that can be taken to try and prevent difficulties arising. They involve being clear, and transparent, as to the terms under which you have given your child money.
The key is to have clear documented evidence to support the ‘intention’ behind the money that you have provided.
Some options to consider include:
- Having a cohabitation agreement between your child and their partner before they get married;
- a declaration of trust;
- encouraging your child to enter into a pre-nuptial agreement prior to marriage and/or a post nuptial agreement after the marriage;
- a legal charge registered on the property;
- a formal loan agreement.
There are pros and cons with each of the above and specific, tailor made legal advice should be sought to ensure the best option is put in place after considering your individual circumstances.
Have you lent your child money and want to know what will happen to it if they divorce?
Contact us for a confidential chat with one of our experts