How can you protect your legal interests and your own interests when gifting or loaning money to your children on marriage or when they buy their own homes? This is a question we are often asked. Unfortunately, it is often after things go wrong that we are asked to advise. The number of times parents come to us for advice when they have lost their own homes while trying to help their children is incredibly sad. Whilst trying to do a good thing it ended up in disaster. Many have worked all their lives to enjoy their homes in their old age.
So how can you protect yourself against this? To help I have set out some scenarios to illustrate the point.
Scenario 1: How to protect your financial gift if you help your child purchase a property?
Aunty S gave her eldest son £20,000 so that he and his wife can buy a property. At the beginning of the property purchase, Aunty S and the eldest son’s wife were listed on the title deeds to honour the £20,000. The wife decided to move into the property, which meant the property required a re-mortgage. They were advised the mortgage would be cheaper if Aunty S was no longer on the application and removed from the title deeds. Aunty S agreed, on the condition that if the wife leaves or divorces her son, her £20,000 must be paid back. Aunty had this done in writing and had her daughter in law sign and have this witnessed.
This can be done in a number of ways. A form of deed, enter a restriction on the property or a post nuptial agreement could be drawn up in the event of the couple divorcing. If the couple’s marriage is not legally recognised then a Living Together agreement can be created. This is also known as a ‘No Nup’ and can determine what would happen to the property or loan on separation.
Scenario 2: Parents sign over their home, where they live, to their child. What happens to that home and the parents if their child gets a divorce?
Uncle N lived with his middle son. In 2013, he decided to sign over the house (transfer ownership) to the middle son. In 2014, the son decided to marry, and his wife moved into their home. In 2019 the marriage broke down and Uncle N was forced to leave the property as he no longer had a legal interest in the property. The couple dealt with the property as part of the financial arrangements of their divorce. Unfortunately, Uncle N received nothing in the settlement, even though he had transferred the property thinking he would live there until he died.
Again, a document could have been drafted to protect Uncle N from this situation. A declaration of trust can be created giving Uncle N a lifetime interest in the property after which the son would have full ownership. Uncle N could have drafted a WILL to pass on the property to his son on his death.
Scenario 3: How to protect a lump sum gifted to your child on their wedding?
Uncle and Aunty H gifted their daughter £40,000 on her wedding as a lump sum to be used for a house. Several years later, the husband started divorce proceedings and requested a financial share of this house. Uncle and Aunty H wanted to ring-fence the £40,000 as they gave this to their daughter and not their son in law. Unfortunately, as this was not written anywhere, they were unable to ring fence the financial gift. This means there is a possibility their son in law can take a share of their gift.
Uncle and Aunty H need to be clear about the nature of the money. Was it indeed a gift or was it a loan to their daughter? A loan can be protected with a deed or again a restriction on the property. This would allow the money to be removed out of any matrimonial assets and returned to the parents before a Divorce settlement is agreed.
If you need help and advice or assistance with drafting the documents mentioned above, please call and speak to a member of our team. These services are part of the family law services we offer.