‘The Bank of Mum and Dad’ has attracted recent press coverage. Pre-nuptial agreements are becoming more common, rather than just the concern of the wealthy. Family finances are becoming more interlinked than ever before. Children are increasingly being assisted by their parents in purchasing their first homes, with some parents re-mortgaging their own property to help their children to purchase. With the mixing of family monies comes increased risks and parents are keen to see their child protected in the event of divorce.

Financial help can often be misinterpreted when a relationship breaks down. Depending on whose side of the case it helps, the financial input from a parent can be seen as a gift or a loan. If the nature of the payment was clearly recorded at the time, there would be no scope for misunderstanding. Failure to do this leads to technical legal arguments on divorce which significantly increase the stress and, of course, the cost of settling the matrimonial finances. Setting out from the outset what the financial help was meant for significantly reduces the time and stress. If it was a gift, it cannot be converted to a loan later on. If it was a loan, there needs to be a clear written understanding of the terms of that loan as to interest and repayment schedules. If not, there is a real risk that the divorce court may come to a different view from the ‘bank’ as to where the monies belong.

If the couple marry, a pre-nuptial agreement, although unromantic idea, is a pragmatic means of engaged couples setting out their intentions before marriage. The agreement should set out in clear terms what is and is not considered a matrimonial asset. It can work alongside other legal documents, such as a Declaration of Trust on purchasing a property. Taking these steps can be especially relevant where there are assets that have been acquired from previous marriages or inheritances, as well as financial assistance from mum and dad.

However, a pre-nuptial agreement can be more wide-ranging than just a list of assets. They can deal with a range of issues including how to resolve children issues and conduct on divorce.

Pre-nuptial agreements (soon to be qualifying nuptial settlements (QNups)) are intended to be fluid documents which change as the relationship evolved. Review clauses are included so that a couple will look at the agreement at regular intervals and on significant life events. Reviews do not require a full re-write, but provide for the couple to consider where they are and whether it should have an update. Any changes should be in writing, signed and witnessed and kept with the original agreement.

When spouses seek a divorce, the court has wide-ranging powers to deal with the matrimonial finances. While the court retains the power to set aside pre-nuptial agreements, since the case of Radmacher v Granatino in 2010 unless the agreement is unfair, they are likely to ratify it provided that:

  1. both have received independent legal advice
  2. both have fully disclosed their finances to the other
  3. there is no suggestion that the other person has been pressured, coerced or intimidated into entering into the agreement.