In a world where getting on the property ladder becomes harder and harder, more and more children are turning to the bank of Mum and Dad to realise their aspirations of property ownership.
Those in the fortunate position to help will often do so but tend to pay little attention as to how their financial assistance is protected. In my experience in happy times people pay little regard to issues that only come to light when things go wrong. Whilst nobody wishes to think negatively or plan for the worst, but with a bit of thought and careful planning, disasters can be avoided. People do not think twice about taking out a policy of insurance to cover financial loss and this is no different.
When a property is being purchased in a person’s sole name, for them to live in alone, matters are relatively straightforward. Any gift of money will become theirs. If money is being advanced by way of a loan to children, there needs to be a formal loan agreement, otherwise the law will presume that it is a gift.
Things become more complicated when the property is being purchased as a home for a couple or when partners are invited to move into property which is owned by one of them.
In the case of those who are purchasing a property as a couple, it is fundamental that they decide how they are to hold the property and in what shares. Any solicitor dealing with the purchase of the property will certainly ask this question as it is stipulated on the transfer document which legally transfers the title of the property.
There are 2 ways of owing joint property either on a joint tenancy or a tenancy in common. A joint tenancy means that the whole property is owned by the joint owners, should either die, their share of the property will automatically pass to the survivor. A joint tenancy means that each party owns the property in distinct shares which are defined at the point of purchase. On death their share will pass in accordance with any will. If there is no will, the law will stipulate who will benefit from their share. Such rules exclude partners who simply live together without formalising their relationship by way of marriage or civil partnership.
If there is an unequal contribution to the purchase of a property, whether this be because of parental assistance from one side or otherwise, and it is intended that this additional contribution be protected; as a bare minimum, any property needs to be purchased as a tenancy in common and the shares defined in a declaration of trust. Some couples who live together will choose to regulate other matters not just the property and this can be done in a co-habitation agreement.
Even once a property is purchased, if a partner moves into the property after purchase, even if they not on the legal title of the property, they can in circumstances make a proprietary claim against the property. The law in this area is quite complex and often leads to protracted arguments. Proving the intention of both parties is crucial. Any difficulties can easily be avoided by entering into a co-habitation agreement or at the very least having something formal in writing clearly recording intentions in respect of the ownership, contributions to the property as well as its upkeep.
The legal landscape will change significantly should any relationship result in marriage or a civil partnership. If any children are involved this could also have an effect on matters. The courts have made it clear that they will not be bound by the terms of any co-habitation agreement or declaration, even a declaration of trust in the event of a divorce or dissolution of a civil partnership.
From decided cases, the courts are prepared draw a distinction between property which has been brought to a relationship (non-matrimonial property) as opposed to that which has been acquired or mingled with property acquired during the relationship (matrimonial property). Matrimonial property is subject to a principle of sharing whereas non-matrimonial property is not. The court is prepared to ring-fence non matrimonial property but will invade it to satisfy need, which includes the need to house. Equally they have made it clear that they will treat any family home differently. No matter who brought this to the relationship, it is likely to be treated as matrimonial property and subject to being shared.
In the family law arena, the court maintains wide discretionary powers as to how financial arrangements are settled. In recent times there has been a shift in attitude. Whilst they are not willing to be bound by prenuptial agreements, as in other jurisdictions, they have said that they will uphold them as long as they are fair. Prenuptial agreements are written agreements which define what should occur in respect of financial matters should a marriage or civil partnership breakdown. Typically, they will define what is to be treated as separate property which is not to be shared and what is to be defined as joint property which is to be shared.
Now, there is therefore at least a way of protecting property even if a couple chooses to formalise their relationship, provided such agreements are properly drafted in terms of substance and adhere to several procedural requirements.
Understandably these agreements conflict with the whole idea of marriage and are not particularly romantic. However, many countries, particularly those on the continent, insist that couples adopt a matrimonial property regime on marriage that stipulates how property will be divided in the event of a divorce. Couples must specifically address their minds to this issue and elect a regime. If they don’t, they will not be able to marry, or a regime is imposed on them by default. Therefore, routinely couples in these countries are forced to enter into some kind of prenuptial agreement and it is accepted as part of the process of being married.
Whilst the law here is unlikely to go that far, such agreements are becoming more popular, particularly with those who have received substantial inherited wealth, or those who embark on second marriages and want to ensure that a certain amount of wealth is protected for their children as well as those with people who have been gifted assets from their parents that they wish to protect.
Therefore, the law now provides a way of protecting parental contributions, but the exact form of protection will very much depend on that person’s circumstances and any protection has to be constantly reviewed as these change.
Bishop & Sewell’s Family lawyers have the knowledge and experience to guide you through these challenging times and have rankings in the Legal 500 for their expertise.
If you are affected by similar issues or would like to have a related discussion in confidence, please call me on 020 7091 2869 or email: email@example.com
The above is accurate as at 24 January 2022. The information above may be subject to change during these ever-changing times. The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.