Protecting family and parents’ gifts from divorce

Family law solicitor, Carol Toulson, discusses how financial gifts from parents can be protected in case of a breakdown in a relationship.

Current trends suggest that our young people are finding it more and more difficult to get on the property ladder.  As prices have increased over the past decade and banks are imposing ever stricter lending requirements for a deposit of at least 10% (or 5% with Government’s Help to Buy scheme).

A potential shortage of affordable housing will also mean that more and more young people continue to stay with their parents well into their adult life.

“We were only to pleased to help our daughter and her partner purchase their first property. At that time we never imagined how badly he would treat her 12 months down the line and then he would walk away with 50% of our cash.”

Young people are also looking for financial assistance from their parents and grandparents to help them get on to the property ladder.  It has become increasingly common for family members for help in raising the required mortgage deposit to purchase their first property.  According to the Council of Mortgage Lenders around 80% of first time buyers under the age of 30 are receiving some form of financial help from their parents.  If parents are providing an advance to an inheritance then bear in mind that there are limits as to how much you can give away.  Although inheritance tax is free on gifts under a certain amount, if you die within 7 years of making such a gift, the money will be considered as part of your estate for inheritance tax purposes.  Parents and grandparents should also consider exactly who they are helping.  Is the money intended to assist your daughter/ granddaughter and her partner or really just your family member?  What would you want to happen in the event that their relationship breaks down?  If your daughter is buying a property in joint names with her boyfriend and that relationship breaks down shortly thereafter, are you content that he walks away with half of your financial assistance?

Giving this matter careful thought before handing over the cash is the wise option.  Financial gifts of this nature can be protected during a divorce.  It is important that the solicitor dealing with the purchase of the property is made aware of the contribution made by one family.  If it is the intention that family member retains that gift, then the parties purchasing the property can enter into a Declaration of Trust which confirms exactly what is to happen.  For example, it can be agreed that one party has a greater share of the property than the other party by virtue of their family’s contribution; or it can be agreed that in the event of the property is sold at some point in the future, one party receives that interest back before any other value is divided.  The cost of contested Court proceedings at the time of separation on the sale of the property can be very expensive and in comparison with the cost of Court proceedings, the cost of the declaration of Trust prepared at the outset is nominal.

An alternative is to make such payment by way of a loan rather than a gift.  Parents can have a suitable loan agreement drawn up which can be secured against the property.  Any such loan could be interest free and the parent/ grandparent may not even really expect that it would actually be repaid but in the event of divorce or separation, your family member can be reassured that that payment should fall outside their dispute.

If you are helping your son/ daughter and he/ she is getting married, consider whether it is advisable for your son/ daughter to enter into a prenuptial agreement to protect those monies and gifts and retain the benefit with the family in the event of future divorce.

At Holmes & Hills Solicitors in Halstead our Matrimonial, Probate and Conveyancing departments can assist you with regard to all of these issues.  We appreciate that discussion with regard to future divorce or separation is certainly not romantic, however, it is entirely practical. If you have any queries or concerns in relation to this area, please do not hesitate to contact our Family Law lawyers.  We offer an initial fixed fee consultation and this is an opportunity for you to discuss your requirements and plans and for your solicitor to give you advice on the various options available to you in more depth.