The Bank of Mum and Dad is now one of the UK’s biggest mortgage lenders. In 2021 The Independent reported that 49% of first-time buyers were supported by loans from their parents. In a time where getting on the property ladder is proving more difficult, these statistics are not surprising.
Those in the fortunate position to help their children will often pay little attention as to how their financial assistance is protected. Likewise, the children who benefit are usually unaware of the impact of a relationship on the gift or loan. Whilst most parents don’t pressure their children to pay the loan back in a certain time frame or intend to charge interest, they are often against the thought of their money being included as an asset in family proceedings.
Before providing financial assistance in a child’s property purchase, parents and children should carefully consider how to protect the contribution in the future. Olivia Dann and Naim Qureshi from the Family & Divorce team at Blaser Mills Law outline the key problems that may arise.
What problems can arise?
In the case of a divorce, you may wonder how the money will be treated in the divorce proceedings. Although you might not be concerned about taking the money back you will want to ensure your child retains that money and limit any claim an ex-spouse might have. The same might apply even if your child simply cohabits with their partner.
If the situation ends up in a court proceedings you may need to be involved or be invited to intervene which could be unpleasant and costly. If you choose not to take part, you could be bound to the court’s findings and the court might make the final decision without your involvement.
What to do if you get served with a notice of proceedings?
Due to the financial risks involved we advise seeking legal advice from a solicitor as soon as possible. Alternatively, you could try to encourage your child and their partner to seek other dispute resolution methods such as mediation.
Lucinda Holliday, Partner and Head of Family & Divorce commented: “So many cases I see now involve money that has been gifted or loaned from parents or involve a property where the parents believe they have retained a beneficial interest in a property. This adds legal complexity to a financial settlement but also has a huge emotional impact when parents provided financial help to their child without realising that the child’s partner could claim against this.
It’s important that the parents and the children both get advice to ensure that this money is protected as well as it can be.”
How to prevent future problems
Some options to consider include:
• Document evidence to support the intention behind the gifted/loaned money
• Ask your children to set up a cohabitation or a pre/post-nuptial agreement
• Set up a declaration of trust
• Set up a formal loan agreement
Seek legal advice to make sure the best suited option is chosen for you and your child’s circumstances.
How Blaser Mills Law can help
The Family and Divorce team at Blaser Mills Law is experienced in financial proceedings and cases involving intervenors. Our lawyers can take away the stress of the situation by offering further information and advice based on your circumstances. We also have a team of experienced family mediators should you wish to follow the step of alternative dispute resolution.