In today’s generation we are seeing a growing number of people relying on their parents for financial support to get a foot on the property ladder. In fact, a survey carried out by Shelter discovered that between 2005 and 2012 – 2 in 10 first-time buyers were supported by a gift or loan from their family or friends.
In principle this is a great idea that will enable you to obtain your first property. It may also form part of your parents’ inheritance tax planning as they take money out of their estate that otherwise would have been taxable on death. However, it’s worth considering the implications of accepting a gift or loan in the event that you separate or divorce further down the line.
How perceptions of the gift or loan can change during separation and divorce
As a fundamental rule, you always should seek legal advice before agreeing to accept a gift or loan to purchase a property. At PMC Family Law Solicitors we are happy to discuss the legal implications of this with you as, all too often, we see perspectives on the money offered change when a relationship turns sour.
To give you an example, married couples going through a divorce, who find themselves in a wrangle over assets, may find that a parent who offered assistance earlier in the relationship suddenly argues that they too have a stake in the matrimonial home. They may also say that the money they provided previously was not in fact a gift but a loan they want repaying.
This doesn’t just apply if you’re married. It also affects couples living together as cohabitees. We’ve seen instances of where a parent has assisted a child in purchasing a home that is in their name only. This leaves the other cohabitee, who may have contributed to the home during their time living together, vulnerable if they later separate. It’s worth noting that this is an issue that can become further inflamed if they have children together.
What to do to protect your or your parents’ investment in the event of separation or divorce
If you wish to co-habit with your partner then you should consider making arrangements to draw up a Cohabitation Agreement. A further document to consider is obtaining a Declaration of Trust. This will outline your respective shares in the property you are purchasing with your partner. In the event your relationship breaks down, you can then refer back to your Declaration to ascertain what agreement you reached in relation to sharing the proceeds of the sale of your property. This brings an element of security and peace of mind for you.
If you are married or due to get married then ensure you understand the implications of the money provided to you by your parents or your partners parents. Are they merely gifting you the money or is it a loan? It is best to record these intentions which can be done by drafting a Pre-nuptial or Post-nuptial agreement. This will assist you should your marriage unfortunately result in divorce, as the matrimonial home or any property you buy with your spouse will form part of the matrimonial pot.
This approach may seem overly cautious to you and assume that all relationship break downs are acrimonious. Experience demonstrates that this is not always the case but taking preventative measures now may save you any hassle in the future. That being said, if you do not or have not taken preventative measures then rest assured that we can still help you.
PMC Family Law is always happy to discuss your options at a free initial consultation with our expert team of family law specialists who are on hand to assist should you wish to proceed. Contact us today on 0151 375 9968.