What happens to my money if my child's relationship fails?
- AuthorPhilip Hoddell
Getting on the housing ladder has never been more difficult for young couples. It is often the “bank of mum and dad” that steps in to help buy that first property. But with more and more couples choosing to live together rather than getting married, what happens to your money if your child’s relationship fails?
How can I protect my investment?
When helping your child buy a property, you can either make a gift or extend a loan. But it is one or the other. The decision about which one it is must be made at the time of the investment, not subsequently.
If you are trying to reduce your estate for tax purposes, then only a gift is likely to achieve that. You cannot claim your gift back though and so the only certain steps you can take to protect your money is to extend a loan and make sure that the terms of it are properly recorded.
What happens if we do not set anything out at the beginning?
Not setting anything out at the beginning is a very expensive way of testing your credibility and not to be recommended. Law courts are full of what we call “he said/she said” cases. In other words there is nothing in writing and everything comes down to who the Judge believes on the day. Things get even more difficult if, as is often the case, your child and their ex-partner claim completely different things.
Can I just give the money to my child to safeguard it?
If you have made a gift, then writing the cheque out just to your child, or paying the money into an account which is just in their name, is not necessarily going to protect the money in the event of their relationship failing. It all depends on what they do with it after that. Remember once you have made a gift you have lost control over what happens to it next.
What about the title deeds to the property – does it matter what they say?
The law is relatively clear on this – if a couple specifies the shares that they will own in the property at the time they buy it, then a court’s starting point is going to be to uphold that decision. The onus will be on whichever owner tries to claim otherwise.
What happens if I (or my child) puts money into the property after it has been purchased?
Again, great care needs to be taken. An investment of funds may not even change the specified shares in the property. Therefore, paying to have an extension built, or reducing the mortgage, should be accompanied by a discussion about how that alters the share your child has in their property.
If necessary, a change can be made to the title deeds to show the investment. If it is you putting the money in, then again, you have to choose whether it is a gift or a loan.
How else could my child protect the investment?
Apart from setting out the property shares at the time of purchase, there is another way of regulating the situation.
Your child and their partner can enter into a cohabitation agreement, which then governs the financial aspects of their relationship and means that if the relationship sadly fails, they have much more certainty about what happens next. Such an agreement can deal with what happens if someone pays off a chunk of the mortgage or invests substantial capital in the property. It can regulate who pays for what and also look ahead to the future and set out when the agreement will be reviewed – for example if children come along.
As well as fewer people getting married, more relationships are ending. Research from NFU Mutual found that nearly half of parents with adult children didn’t trust their child’s choice of partner. 20% of them described their children’s partner as either money-grabbing, secretive or even dishonest.
If you have worked hard all your life to benefit the family, the last thing you want is your child’s ex-partner to benefit – particularly if the relationship is short or even toxic. Perhaps that is why more people are talking to their family solicitor before putting money into their children’s houses.
If you would like advice on any of the issues raised in this article, then please contact me for a free 15-minute discussion.