Helping your child buy a home is an exciting step, but you may be concerned about what happens to your contribution if they buy with a partner and the relationship breaks down. So, how can you protect the ‘Bank of Mum and Dad’?
In this article, Residential Property Paralegal Edward Carter, explains the options available to parents and how putting the right agreements in place can help protect their contribution.
How can I protect the Bank of Mum and Dad when buying a house?
There are several ways in which parents can protect any contributions they have made towards a shared purchase and reduce the risk of those funds being treated as a shared asset in the event of the breakdown of a relationship.
You can find out more about how parents can help first-time buyers here.
Declaration of Trust
How does a Declaration of Trust protect the bank of Mum and Dad?
A Declaration of Trust is a document, usually drawn up by a solicitor, that records the parties’ respective interests in a property. The document can also specify whether a contribution by parents belongs solely to their child or whether it should be shared with a partner in the event of separation.
A Declaration of Trust is legally binding and is usually prepared before or at the time of the property purchase. It provides clarity and certainty regarding ownership from the outset.
Our expert team can help you with the creation of a declaration of trust, or any related declaration of trust queries. Get in touch on 01202 499255.
You can read our dedicated article on what a Declaration of Trust is here.
Cohabitation Agreements
How does a Cohabitation Agreement protect the bank of Mum and Dad?
For unmarried couples, a Cohabitation Agreement can be an effective way of recording how assets will be dealt with during and after a relationship.
If parents have contributed to a property purchase, this agreement can confirm whether this contribution is specifically due to their child and sets out how any equity will be divided following separation. This could help avoid any future disputes in the event of a separation.
Alternatively, you can get in touch with a member of our specialist Family team to discuss your options, on 01202 499255.
Prenuptial Agreements
How does a Prenuptial Agreement protect the bank of Mum and Dad?
A Prenuptial Agreement is entered into before marriage and records how assets shall be treated if the marriage ends in divorce.
A prenup can help parents who provide funds towards a property purchase as it can demonstrate that the payment was only intended for their child and does not form part of the assets available for division on divorce.
Although Prenuptial Agreements are not automatically legally binding in England and Wales, the courts will often give significant weight to them provided they have been properly prepared and freely entered into by both parties.
You can read our more in depth article on prenuptial agreements here.
BoMaD Loan Agreements
How does a Loan Agreement protect the bank of Mum and Dad?
In some cases, parents may wish for their contribution to be treated as a loan rather than as a gift. If this is the case, a formal Loan Agreement can document the arrangement and set out key terms, including repayments, timescales and interest.
Properly documenting a loan can help demonstrate the parties' intentions and provide evidence that the money is repayable. It can also make it clear that the loan is a liability of the borrowing child, rather than a joint asset to be shared between both partners in the event of separation or divorce.
Specialist First Time Buyer Solicitors
If you have any questions about protecting the bank of Mum and Dad after reading this article. Get in touch with our expert team on 01202 499255.
We offer all new clients a free initial chat with one of our bright, friendly lawyers.
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