Solicitor Hannah Gibbons, in our Family Law team, explains how parents gifting money to their children can protect any financial gifts should their children's relationship break down.
It is becoming increasingly common for parents and relatives to financially support younger generations in progressing to the next stages in life. Whether this be contributing to a property deposit, mortgage payments, wedding funds, or even businesses ventures, relatives are often significantly contributing to young couples building the foundations of their newly established relationships and marriages.
The Institute of Fiscal Studies released statistics on the patterns in intergenerational lifetime gifts in February 2023, and it was reported that over half of the value of gifts received (£7.4 billion per year) are used for property purchase or property improvement by younger generations. The parents or extended family members making these payments can understandably be keen to protect their contributions, and often want to know whether these can be ringfenced or recouped in the event of the recipient couple’s divorce or separation.
For separating unmarried couples, reliance on legally binding agreements is often the most straightforward method of demonstrating and enforcing legal and beneficial interests in an asset. Declarations of Trust are often utilised to record financial contributions to a property and how it will be owned, sold, and more specifically, how the sale proceeds would be divided in the event of separation.
For married couples seeking a divorce, the starting point for the division of matrimonial assets is equality, meaning that each spouse can expect to receive 50% of the matrimonial assets depending on a variety of factors. Broadly speaking, this is the methodology behind the ‘sharing’ principle, where the matrimonial pot will be divided equally between the parties unless there is a good reason to depart from this approach. The alternative principle is based on ‘needs’, where the departure from equality of a 50:50 division is justified by the increased ‘need’ of one party to the divorce, resulting from factors such as a disability or a lower earning capacity.
Another key distinction lies in what is deemed a matrimonial asset. This is an asset that has been accrued during the marriage because of the couple’s joint endeavours. Non-matrimonial assets are those which have been acquired post separation and not intermingled with jointly owned assets. Therefore, the more ‘separate’ the asset is, the less likely it is to be deemed matrimonial and something that the other party has an interest in.
If a contribution can be proven to be an enforceable loan with the intention of full repayment, the contribution itself is less likely to be deemed a liquid asset to divide in the separation or divorce. Similarly, if a legally binding agreement such as a Declaration of Trust has been drafted to record the contribution and reflect the beneficial or financial interests in an asset, this can also be deemed sufficient evidence to support a claim to ringfence the financial contribution. Third party interests in assets are often strong evidence that the asset itself is non-matrimonial, as it is less easily liquidated and utilised in the division of assets.
It is possible to draft an agreement reflecting the intended contributions prior to a marriage taking place. This is known as a pre-nuptial agreement or “Pre-Nup”. A Pre-Nup records how any contribution will be allocated in the event of a divorce. Post-nuptial agreements can also serve the same purpose but can be entered into following the marriage taking place. It is important to note that these agreements are not technically legally binding, but in practice they can act as strong evidence of the parties’ intentions of what was sought in the event of a divorce and how specific contributions should be dealt with in these scenarios.
If you would like legal advice in relation to protecting your financial contributions, we would recommend speaking to a solicitor in our specialist Family Law team before making any decisions. We can assist to make sure that your wishes and intentions are properly reflected.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
