When the bank of mum and Dad backfires

Moving home the bank of mum and dad

It is very common these days for parents and grandparents to loan money to their children and grandchildren to help them get on the property ladder or to improve their home.  

Family arrangements are often done as a gentleman’s agreement with no documentation. But what happens if your child’s relationship breaks down?   Will your child’s partner claim it as a gift? How safe is your investment and will you ever see it again? 

In short, no formal footing makes it very difficult to guarantee your money will be returned to you in the event that their relationship fails. Make sure your investment or loan to your child is dealt with properly by considering these golden rules before handing over any money:

  • Ensure there is a written record of any money given to your child and their partner or spouse in a loan agreement ideally with a solicitor 
  • If the money is to help them buy a property, consider registering a legal charge over that property in your favour which will rank on the legal title in a similar way to a mortgage. 
  • You could consider jointly owning the property with your child or grandchild and their partner as ‘tenants in common’ defining your interest in the property within a declaration of trust. 
  • If your child intends to cohabit with a partner in a property that you have partly funded and is owned by your child, then it would be essential for them to enter into a cohabitation agreement.  This will regulate the terms of their relationship whist they remain unmarried and protect your respective interests in the event that the relationship subsequently breaks down and a claim is made against the property by the former partner. Don’t rely on the lack of ownership of the property as this does not always prevent a former partner from making a financial claim,  
  • If your child or grandchild subsequently wishes to marry after purchasing a property with our assistance, it would be worth considering a pre-nuptial agreement to ring-fence any pre-acquired assets in the event that the marriage were to breakdown in the future. 

It is also important bear in mind that there are special rules that relate to a marital home on the breakdown of a relationship particularly where children are involved and therefore it is important that you take comprehensive legal advice at the time the money is loaned to ensure that there are safeguards in place.  


Thrings Private property lawyers

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