As our children grow and form relationships of their own, our parenting demands change and rather than offering financial assistance to buy the latest bike or doll, we find ourselves being called upon instead to provide much greater financial assistance by way of a deposit on our child’s first home. This brings with it the question of how would such an investment into a property be dealt with if our child then lived in their home with their new partner or even married them?
All too often, wealth that parents have worked for many years to build up and used to help their offspring get on the property ladder gets lost or taken by their child’s partner when a relationship ends. Whether the child had been married or simply was cohabiting, if the investment from the parent is not properly legally protected and documented at the outset and time of the financial investment being made, the reality is that the legal rights of the child’s partner upon the relationship ending may mean there are insufficient funds left to repay the parents at all or that such funds have to come from what would otherwise have been their child’s share of the property.
Upon divorce, there are no hard and fast rules about how finances are split. All of the circumstances of a case are taken into account and first consideration is always given to the welfare of any dependent children. Potentially this could mean that you have financially helped your child buy a family home only to find that upon divorce such a property is occupied exclusively by your child’s former partner and children to the exclusion of your own child who you were trying to help in the first place. It may mean that you don’t see the return of your financial investment for a number of years, if at all, or that such an investment is simply “lost in the mix” and the equity of the property divided without such an initial investment first being returned.
With cohabiting couples the division of assets is a lot more restrictive and property is essentially divided in line with how the property was purchased and owned. If your initial investment was never properly documented this may mean it is lost forever and never returned to you.
Every case will be different and treated upon its own facts, but the key factor is that without proper planning and legal documentation being in place, a financial investment made with every good intention could still be vulnerable to a claim from your child’s partner in the event of their relationship failing.
Whilst it is fair to say that nothing can be totally excluded from a potential claim in the event of a relationship failing, it is always better to take steps at the time the finances are advanced to seek to protect or ring-fence the investment from such claims. Proper planning in advance which results in the investment being legally protected by formal documentation can make a significant difference to the outcome of a case and ensure the financial support you wanted to give to your loved ones is not lost or taken away by others.
The existence of a formal loan document may make it much more difficult for your money to be claimed against if your child’s relationship ends and would guarantee that there could be no suggestion that it was made as a gift.
Of course, alongside a formal loan document or even in the absence of one, there may additional measures of protection which should be considered.
In the event of marriage being on the horizon, the most obvious solution would be to ensure your child has a pre-nuptial agreement in place that recognises your financial investment and guarantees that it is either ring-fenced from any claim upon divorce or returned to you.
Even if the marriage has already occurred it is not too late to seek to protect your investment and your child could enter into a postnuptial agreement.
If marriage were not on the cards and your child was simply intending to cohabit with his or her partner, a living together/cohabitation agreement could be considered which would similarly seek to ring-fence and protect your initial investment.
You may also choose to seek advice about protecting your wealth through the establishment of a trust.
The key is preparation. Before you part with your money, consider what documentation, if any, should be in place, particularly if you envisage the money being returned in the future.