The bank of Mum and Dad

Protecting gifts and loans from family members

Parents frequently give their children money or property prior to or after their children have married. A recently survey by Legal and General estimates that parents on average are lending/giving their children about £6.3 billion a year to help them move on to or up the property ladder. This means that they are now the 10th largest lender in the UK.

These monies may come either from savings , pensions or equity release schemes. A quarter of those surveyed were concerned that they would not have sufficient money in retirement.

42% of marriages end in divorce. Therefore, it is essential that when parents provide their children with funds, they ensure that these monies are protected and do not form part of the matrimonial pot for division on divorce.

If monies are given prior to marriage, the child can enter into a prenuptial agreement. This will treat the funds provided by the parents as separate property which are not to form part of the matrimonial settlement. This agreement can also include future gifts and inheritances.

During marriage, any gifts will be treated as a joint asset. Therefore if the money is a loan, it is essential that this is recorded in an agreement setting out the terms of the loan and specifying the trigger events of repayment.

If a loan is made without any documentation and it is accepted by both parties that it was a loan, the court might still decide that this is a soft loan and not on the par with a bank loan which would be treated as a hard loan. In certain circumstances, the parent may have to go to court to give evidence about the loan.

We recently acted on behalf of a wife whose mother had lent funds to her husband to repay debts. There was no documentary evidence. The husband maintained that this was a gift consistent with other gifts that his mother-in-law had given the parties during the marriage. The case was settled without any decision being made as to whether or not it was a loan or a gift.

On the other hand, we acted for a husband whose father had provided the deposit to enable the parties to purchase their first home. The loan had been documented and signed by the parties. It was to be repayable on the sale of the property. Our client’s father had lent monies to our client’s siblings on the same basis so that they could purchase their first homes. This was accepted as a loan that was repayable and deductible from the net equity upon sale before division of the proceeds.

If you would like to find out more information about the issues raised above, please contact Susan Taylor. 0161 883 0460 or email st@taylorking.co.uk