The vast majority of us are, or will be, struggling financially due to the coronavirus pandemic, and there are many who are asking for the financial support of their parents or relatives. Some would prefer not to take advantage of a mortgage holiday, loan or overdraft when they have relatives who can assist them on a more flexible basis without the hefty interest rates attached. I have spoken to some individuals who are arguing continuously with their spouses about money, and think that perhaps borrowing money from their parents might alleviate some of the burden and better their relationship.
If the description above matches your thought process right now then you need to stop to consider what you should do to protect your parents’ money if you separate. You may think that nothing needs to be done, but what if you separate from your spouse and they start divorce proceedings; would you want to make sure they get their money back? What you will want to avoid is any question as to whether the money is repayable. The issue is often whether the debt is repayable and should be taken into account like other “hard” debts (for example where the creditor wants their money back on a credit card or loan etc), or if it’s a “soft” debt where the creditor will never actually push for the debt to paid back. If the money is treated as a soft debt it will get ignored.
Various online articles say that in 2019 the “bank of mum and dad” gifted or lent over £6.2 billion to help their children onto the property ladder. That amount is only in relation to purchasing a property, we all know there are many more parents who frequently lend/gift money to their children for any number of reasons, carefree and without hesitation. Unfortunately, more often than not without consideration of what might happen if their child separated from their partner or spouse (my colleagues have written on this subject in a number of additional blogs here). I wonder how much this statistic will be in 2020 due to the coronavirus pandemic.
During this lockdown period and with the increase in unemployment, many of us may have no option but to look to our parents or relatives for some financial support. Before doing this consider the consequences for them, especially if you are experiencing issues in your relationship. Financial struggles are burdensome and are all too often a significant contributory factor to a relationship breakdown.
My practical tips to make sure you protect your parents’ money, but retain some degree of flexibility:
- Make sure everyone is aware that the money is a loan (and therefore repayable) and not a gift. Be transparent with your parent or spouse. Make them aware they are lending the money to you (or you both) and although they will not want it back straightaway, they will eventually wish for this money to be repaid.
- Put something in writing, even if it is just an email between you all. Make sure the terms are clear i.e. how much, is interest payable and when it is expected the money will be returned.
- When they transfer the money into your bank account make sure they reference it as a “loan”.
- Start paying them back when you can, even if it is just £50 a month, and do this by bank transfer as a “loan repayment”.
- Give serious consideration to entering into a loan agreement and defining the repayment terms, even if those repayment terms have a trigger for payment at a later date. If used to acquire a property, there may need to be a formal agreement which could be recorded at HM Land Registry.
If you are experiencing relationship difficulties and you are in any doubt about the ramifications of accepting financial support during this time, then make sure you seek independent legal advice before accepting any money from your parents or relatives.
Emily Pain is a Consultant in North Hampshire/Surrey. She advises clients in Fleet, Hook and the surrounding areas, including Guildford, Farnham, Farnborough, Wokingham, Alton and Basingstoke.
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