We were contacted recently by a lady who had loaned her parents tens of thousands of pounds to assist them to purchase their home. This being a family affair there were no documents available showing her interest in her parents home. She wanted to know how she was going to get her money back!
In Divorce and Separation cases Emmersons Solicitors Family Law Department are frequently dealing with situations where one or other of the parties, or sometimes both, say that their parents want their money back now that the couple are separating.
It is now extremely common for younger people to be given gifts of money or loans to help them purchase their first home. At Emmersons we would say that this happens in about 10% of cases. The property is then either purchased by one person using that money or by a couple using money from either one or both sets of parents.
Yet very few families sit down and discuss the situation properly. Is the money a gift in which case the parent does not expect to be paid back whatever the circumstances. Or is it a loan, and if so what are the terms of repayment? When money is handed over it is often seen as a good thing; your child is making their way in life and you are proud to be able to help them. But did you plan for the following situations?
In one case a young couple,Tom and Laura, moved to London. As you can imagine house prices were beyond their means. Tired of renting, Laura asked her parents if they could help out. They gave their daughter £40,000 which Laura and Tom used as a deposit on a nice flat. Fast forward two years. Tom decided it would be a good idea to become a cocaine addict. He got into debt and Laura frankly had had enough of him. When she asked Tom to leave, he said he would happily go if he could take his share of equity in the flat. Neither he nor his parents had contributed any capital and often he hadn’t even contributed to the mortgage because of his drug habit.
Unfortunately Laura and her parents had assumed that as they had contributed the deposit Laura would be OK. In fact the property was owned by Tom and Laura in such a way that he was now entitled to half of the equity. No one had taken legal advice on the point. There was no evidence of the money being given as a loan, there was no trust deed showing either Laura or her parents as owning a greater share of the property than Tom. Worse was to follow; the flat had shot up in value and the equity was now £120,000. So Laura had to find £60,000 to buy out Tom’s share or lose her home. Yet again her parents had to come to the rescue!
In another case, Evie and Sal wanted to buy a house together. Unfortunately Sal couldn’t obtain a mortgage in her name. So the house was purchased in Evie’s name only. Shortly thereafter Sal had money available to contribute to the property. The couple contacted the building society and, finding out that it would cost about £500.00 in legal and other fees to have Sal’s name added to the legal title, they decided not to bother.
During the next five years Sal paid her share of the mortgage and she paid a lump sum to have a conservatory built on the property. Unfortunately Evie’s business folded during the recession and she amassed a huge amount of debt. She was eventually declared bankrupt and her Trustee in Bankruptcy sought the full equity in the property. Because Sal had no registered interest in the house it was a very difficult process to convince the Trustee that Sal had money tied up in the house. It took over a year to defend Sal’s position and to make sure that she was able to retain some of her equity. It cost Sal thousands of pounds to defend her case. A lot more than £500.00!
Have you been asked to lend or gift money to a relative so that they can purchase a home? Do you want their partner to benefit from your savings if the couple separate? Do you want your savings to benefit a Trustee in Bankruptcy?
Have you given money to elderly parents? If they have to go into a care home then how are you going to protect your money from being used to pay care home fees?
It is essential that you obtain the right legal advice when giving or taking money in these circumstances. Everyone involved needs to agree, and record in legal documentation, the terms of the monetary advance.
If this applies to you, contact us at Emmersons Solicitors to see how we can help you.