Protecting the Bank of Mum and Dad on Divorce

With so many couples now relying on the Bank of Mum and Dad when they set up home together, divorce throws up a whole new set of problems for parents who want to safeguard the investment they made in the early stages of the relationship.

How parents help

Whether it’s inheritance tax planning, succession planning in the family business, gifting a house deposit, helping to finance home improvements or paying for furniture or a car, financial support from mum and dad is often closely woven into the future plans of newly married or cohabiting couples.

What can go wrong

If the parental money has been loaned or given to help a son or daughter purchase a property in joint names with their cohabiting partner, the partner may be entitled to 50% of the property even if they haven’t contributed anything. If the son or daughter is married, their spouse may be entitled to a share.

In the case of farming families, buildings and land may have been passed down through generations and matters are further complicated if the business supports the farmer’s relatives and their families or where property is owned jointly. We have a lot of experience of working with farming families and our role, whether we are advising a spouse in a divorce or the trustees of a landed estate, will be to achieve the desired outcome for our client whilst protecting the interests of future generations and the viability of the business.

We have seen instances where mum and dad have given their son or daughter land next to their own home to enable them to build their own property. This can be a practical and cost-effective option for the couple starting out together but what if they separate and both want a share of the property? It may have to be sold or mortgaged to release capital for a settlement.

Sometimes parents lend money to cover a major expense such as house renovations, with the intention that it will be repaid at some time in the future.  In these situations the arrangement is usually based on trust alone and not documented and it could be argued that it was a gift rather than a loan.

How to protect your parents’ investment

If you are moving in with a cohabiting partner, make sure any parental money is paid into an account in your sole name rather than into a joint bank account. If the money is for a deposit for a house and your partner can’t match the deposit consider whether the house should just be in your name or owned in unequal shares.

Cohabitation Agreements and Marital Agreements (pre-nup before marriage and post-nup after marriage) can be drawn up by us for you.  These are designed to protect as far as possible any money received from parents or assets acquired before the marriage.

Anyone who doesn’t want assets to be shared equally with their partner and spouse in the event of the relationship ending should take legal advice at the earliest opportunity.

If you are a parent wanting to take steps to protect your investment read our advice on safeguarding family money.

To see how we can help you protect your position give us a call today on 01423 594680.

Andrew Meehan is an experienced family lawyer specialising in complex divorces involving significant or hidden assets, as well as cases involving children.

He is recommended for family law by both Chambers 2019 (York, Hull and surrounding regions) and the Legal 500 2018 (Leeds/West Yorkshire and North Yorkshire region).

Everyone’s circumstances are different and this article is provided by way of general information only and must not be replied upon.  If you require legal advice on a family law issue, please feel free to contact us by emailing enquiries@harrogatefamilylaw.co.uk.