'The Bank of Mum and Dad' (BoMaD) is where parents gift or loan their children finances to help them get onto the property ladder.
If nothing is done to protect the bank of mum and dad, there is no guarantee that monies will not be treated as a shared asset in divorce and split with the child’s partner.
This is a follow up article following on from ‘How can parents help first time buyers?’. If you have not read the introductory article, I recommend doing so before reading this. Click here to read.
How can I protect the bank of mum and dad?
There are multiple ways that you can protect the bank of mum and dad and prevent gift(s) being split in divorce:
Declarations of trust
How does a declaration of trust protect the bank of mum and dad?
A declaration of trust can be used to set out that, in the event of divorce, the BoMaD gift sum should only be given to the child of the parents; not split between the separating couple. A declaration of trust is legally enforceable and should be entered into prior to property purchase.
My colleague Lee Young discusses declaration of trusts further here.
If you wish for us to assist you with the creation of a declaration of trust, or have any related declaration of trust related queries, please feel free to contact us on 01202 499255.
How does a cohabitation agreement protect the bank of mum and dad?
Cohabitation agreements are another way of setting out the ownership of assets and financial responsibilities prior to purchase of a property. Such an agreement is also a method of protecting a parent's contribution to property purchase, by clearly setting out how assets are to be shared in the event of a split; preventing the other partner being able to claim.
You can read more on our Cohabitation Agreements sub-service page here.
Alternatively, we can discuss your specific circumstances over the phone. We offer a free initial chat for all new clients.
How does a prenup protect the bank of mum and dad?
A Prenuptial Agreement is a formal agreement between a couple prior to marriage which sets out how assets should be divided if the couple were to divorce. In the context of this article, a prenup can provide the parents with assurance that money paid into their child's property is protected, in the event of a divorce.
Although a prenup is not yet legally binding in England, an agreement is likely to be upheld in court.
BoMaD Loan Agreements
How does a loan agreement protect the bank of mum and dad?
Parents may wish for their monies to be treated as a loan rather than a gift. In this case, the parties should enter into a Loan Agreement.
This will set out the terms of the loan, such as repayment due and whether there is to be any interest payable. It is important to properly document such a loan in this way, as HMRC can be suspicious of loans between parent and child.
A Loan Agreement can also clearly set out that the loan is not a joint asset and is to not be shared between both partners in divorce, preventing the child's partner making a claim.
Specialist First Time Buyer Solicitors
If you have any queries regarding bank of mum and dad protection, or have any other related questions, please feel free to contact us on 01202 499255.
We offer all new clients a free initial chat with one of our bright, friendly lawyers over the phone or by video call.
First-time buyer guidance
We have written several other articles for first-time buyers, these are listed below: