In an era where property transactions, financial arrangements, and relationships have become increasingly complex, safeguarding family wealth and assets has become a paramount concern for many. In this insightful Q&A, our Executive Director, Jessica Crane together with Senior Associate Solicitor at Hall Brown, Alice Rogers, delve into the intricacies of family wealth preservation, property gifts, and the vital role of cohabitation agreements. Jessica and Alice address common scenarios and potential legal challenges that wealth holders may encounter when assisting their children or grandchildren in property purchases. Their expertise sheds light on the importance of documentation and thoughtful planning to ensure a secure and harmonious financial future for all involved.
Q: We often have clients who are looking at ways to help their children or grandchildren with a property purchase. If the child or grandchild is living with a partner but unmarried, is there anything particular that the wealth holder should be thinking about doing in terms of family wealth preservation and protecting their gift?
This scenario is increasingly common, with a growing number of cases involving advanced inheritance gifts. . Unfortunately, the idea of common law husband and wife remains a misconception in our society. This, together with a lack of understanding of property disputes for unmarried couples results in property purchases going ahead without a real awareness of the potential legal issues which may arise upon separation.
What this means is that without certain documentation in place the gift can be exposed to a claim from the person who is living with the recipient of the gift. This is an area of law fraught with difficulty and which hinges on evidence, so the steps taken at the outset are crucial.
It is important to have a clear understanding of each party’s legal and beneficial entitlement which can be supported by a deed of trust and/or cohabitation agreement at the time of purchase.
Q: What if the parents loaned their child some money to buy a home?
If there is an agreement that monies are provided by way of a loan, any individual entering into the loan should have the benefit of legal advice and this should be documented clearly. This means any loan agreement should ideally be prepared by a commercial solicitor, and include details such as repayment terms, interest, timescales etc. Whilst it is advisable to adopt a ‘belt and braces’ approach in terms of evidence, if litigation becomes necessary, it is important people are aware of how the Courts distinguish between soft loans (i.e., loans from a family member) and hard debts (i.e., a credit card liability).
Q: Once a couple has signed a cohabitation contract, it is easier to broach the subject of pre-nuptial agreements if the couple then get engaged?
Absolutely. My experience is that if a cohabitation agreement has been discussed and signed by the parties upon purchase of a property (or alternatively, one party moving into the other’s property), this creates a helpful stepping stone for future discussions around finances. I would describe the act of a cohabitation agreement as a helpful precedent in a relationship as it indicates what is likely to be required at a later date, and it therefore really manages expectations.
One of the difficulties with pre-nuptial agreements is how to raise them in the first place. If a couple has entered into a cohabitation agreement, then they have already experienced talking about such matters, have a mutual understanding of how finances are to be dealt with upon separation and experienced the process of documenting an agreement. This makes the task of discussing and agreeing the terms of a pre-nuptial agreement much less challenging.
Q: And what should they consider if the gift is not to buy a primary home but a personal or a business loan or gift?
This really depends on the intention of the loan or gift and whether the parties to whom the loan/gift is being made are married or not. The beauty of pre-nuptial agreements is that you can tailor them to stipulate how monies from family members would be treated in the event of the marriage breaking down.
Q: in the scenario that the child’s partner helps pay the mortgage, could they have a claim on the property?
Arguably yes, but this depends on all of the circumstances of the case. This would be considered as a TOLATA claim (i.e., a claim under the Trusts of Land and Appointment Trustees Act 1996), in which the partner is seeking a beneficial interest in the property.
We are seeing a rise of these cases and they can be complex with substantial sums involved. This is why it is advisable to obtain legal advice when a purchase is considered, so that an agreement in respect of how the property is held, and contributions to the property, can be clearly agreed and documented.
With a clearer understanding of these complex dynamics, we encourage individuals to seek legal guidance and consider cohabitation agreements to protect their assets and foster secure financial futures. If you’d like to know more about how London & Capital can help, get in touch with Jessica here.
