Protecting wealth – the bank of Mum and Dad

Welcome to the first in a series of three podcasts covering protecting family wealth.

Katy Barber, senior associate in the family law team discusses the issues that may occur when parents and grandparents to loan money to their children and grandchildren.

It is very common these days for parents and grandparents to loan money to their children and grandchildren to help them get on the property ladder or to improve their home, but what happens if their relationship breaks down? How safe is your investment?

The problem with family arrangements is that they are often done informally with no documentation which makes it very difficult to guarantee your money will be returned to you in the event that their relationship fails.

The golden rule is to always put these types of arrangements on a formal footing such as:

  • Ensuring there is a written record of any money given to your child and their partner or spouse in a loan agreement.
  • If the money is to help them buy a property, consider registering a legal charge over that property in your favour which will rank on the legal title in a similar way to a mortgage.
  • You could consider jointly owning the property with your child or grandchild and their partner as ‘tenants in common’ defining your interest in the property within a declaration of trust.
  • If your child intends to cohabit with a partner in a property that you have partly funded and is owned by your child then it would be essential for them to enter into a cohabitation agreement. This will regulate the terms of their relationship and protect your respective interests in the event that that relationship subsequently breaks down and a claim is made against the property by the former partner.
  • If your child or grandchild subsequently wishes to marry after purchasing a property with our assistance, it would be worth considering a pre-nuptial agreement to ring-fence any pre-acquired assets in the event that the marriage were to breakdown in the future.

It is also important bear in mind that there are special rules that relate to a marital home on the breakdown of a relationship and therefore it is important that you take comprehensive legal advice at the time the money is loaned to ensure that there are safeguards in place.

Contact our family solicitors who can advise you.