According to figures released today parents are lending their children approximately £5bn a year to help them get a foot on the property ladder. Even if a child buys a house on their own, the likelihood is that this, or a future house, will be shared with a life-partner.
Break-ups however, are a fact of life and as well as the emotional turmoil at the breakdown of the relationship, there are also financial issues to deal with, including what happens to the funds so generously provided by mum and dad?
The funds provided by parents are likely to be protected if they were advanced by way of a loan to assist with a house purchase. This is regardless of whether the couple are married or are cohabiting. If the funds are to be loaned to a child for a house purchase, this loan should be properly set up in writing at the time of the advance. Loan arrangements that only come to light at the time of the breakdown of the relationship are likely to be looked at with a healthy degree of scepticism.
Most parents would rather gift money to a child to help with a house purchase than lend them it. Unfortunately, money gifted to children is not automatically protected in the event of the breakdown of that child’s relationship. The likelihood of being given credit for a gift from parents for the purchase of a house upon the breakdown of a relationship will depend on many different factors including:
- The title position of the property. Is it in the sole name of the child or the joint names of the child and their partner or spouse?
- How large was the sum gifted?
- Did the gift from the parents go towards the purchase of the current house, or was it for an earlier property?
- The length of time since the gift;
- The length of the relationship;
- Who the gift was to? Was it a gift to their child, or could it be argued that the gift was to their child and their spouse or partner?
- Whether there are children of the relationship and;
- Whether the couple are married or cohabiting.
If parents would rather gift a child money to help them on the property ladder, the one way of protecting this gift in the event of the breakdown of the child’s relationship would be to ask the child to sign an agreement with their spouse or partner, to provide that the gifted funds are protected in the event of the breakdown of the child’s relationship. Neither pre-nuptial nor cohabitation agreements are particularly romantic, but they are an effective way of protecting money that has been gifted to children.