04 May 2020
The problem with the Bank of Mum & Dad...
Research by the Centre for Economics and Business (CEBR)in 2019 confirmed that parents werecontinuing to pay out billions of pounds every year to help their children purchase a home.
The average expected contribution in Scotland was £16,400.
Often, the “Bank of Mum and Dad” will contribute towards the cost of their child purchasing a home with his / her spouse or partner. At the time of purchasing the home, this financial support is gratefully received but the parents and their child may be exposed financially if the couple subsequently separates or divorces, unless the nature of the financial support is agreed and recorded by the parties at the time.
Where the couple purchases the property in joint names and in equal shares, the starting point is that the net value of the property will be divided equally between them. This is also the case if one party purchases the property in their sole name, either before marriage for use by the couple as a family home or during the marriage. This may result in an unacceptable outcome, whereby one party receives a share of the other party’s family’s wealth, especially if the funds represent an advance on inheritance, but Scots law does not automatically protect a parents’ investment in these circumstances.
Loan or gift?
Often the lack of a clear agreement gives rise to disputes on separation or divorce as to whether the financial support provided by one party’s parents constituted a loan or a gift, and whether it was a loan or a gift to the child or to both parties. The difficulty usually arises because the parties have not considered how the financial support provided by the parents will be treated on separation or divorce or set out the intentions of the parties in writing.
Where one party contributes more towards the purchase price of a property than the other party by way of a parental gift or a parental loan, there are steps which that party can take on separation or divorce to attempt to seek redress but this is not straightforward nor is the outcome guaranteed. Furthermore, if Court action is required, this will be expensive, delay a resolution of matters and maytake its toll on the emotional wellbeing of the parties too.
There are a number of ways to protect these funds, whether the funding is to be regarded as a loan or a gift. In the majority of cases, a Minute of Agreement between the parties and their parents would be advisable and additional protection may be recommended by way of taking title to the property in a particular way, or if applicable, securing the loan against the property. It is acknowledged that it may be unappealing to broach the prospect of separation or divorce at such an exciting time but there is no doubt that a difficult conversation now will provide certainty and reassurance in the future.
We can help...
Our team of specialist family lawyers can provide advice to anyone who is contemplating purchasing a property with their spouse or partner or providing funds to children for a property purchase.