According to The Law Society of England & Wales, there has been a sharp increase in the number of inquiries about pre-nuptial agreements. This rise is fuelled by parents looking to protect their investments when helping children onto the property ladder.
Rising house prices and strict mortgage requirements mean that today, more and more first-time buyers are struggling to afford a home. With deposits of at least 10% needed in many cases, and a severe shortage of affordable homes, according to a report by the National Housing Federation, some 3.7million young people will be living with their parents by 2020.
It has, therefore, become increasingly common for grown up children to turn to the ‘Bank of Mum and Dad’ for help in raising the required mortgage deposit. And it seems to be working, with the number of first-time buyers now reaching the highest level since 2007.
What happens, however, if you gift a mortgage deposit to a child and their partner subsequently moves in?
When a couple marries, both parties have the right to claim against the other’s property should the relationship break down, regardless of who paid for it. This means that, not only could an ex-partner claim half the value of the home, but that any parental ‘gift’ could also form part of the financial settlement.
Therefore, to avoid losing out in the event of a break-up, savvy parents are increasingly forcing their children to sign pre-nups.
A pre-marital agreement is a contract entered into by a couple before marriage. It establishes how assets will be divided in the event of separation or divorce. While not binding under English Law, the courts are increasingly attaching weight to pre-nups during settlement discussions. However, to give these agreements a chance of standing up in court, it is vital that you obtain professional legal advice.
With a carefully drafted pre-nuptial agreement in place, the court may take into consideration any money provided by parents when purchasing a property. Therefore, rather than splitting the value of the property 50/50, this deposit could be protected.
When a new home is bought with financial assistance, it is also vital that the conveyancing solicitor is made aware of the situation, and that the deeds reflect this.
Another way to advance an inheritance to children looking to buy their first home is to make the payment a loan rather than a gift. This way, parents can draw up a loan agreement secured against the property. Even if the loan is not expected to be returned, in the event of a relationship breakdown, this payment will fall outside of any negotiations or dispute.
Prior preparation can ensure that parental generosity is safeguarded and financial gifts protected. At Linder Myers, we are experienced in protecting gifts of this nature. If you would like advice on this issue, please do not hesitate to contact us to discuss your options in more depth.Find out more about our Family department