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Protecting Family Money

It is increasingly common for parents or relatives to gift their children or grandchildren a deposit for a property. It is so difficult for first time buyers to get on the property ladder that often family members want to offer a helping hand. This is sometimes on the basis that it is a loan to be repaid when the house is sold (or some other future date) or it can be by way of a gift or in lieu of future inheritance.

Particularly where the money is a gift, it is often an important consideration for those gifting the money to be satisfied that it will be protected. One risk to this is if the person that they are helping enters into a relationship or marriage which later breaks down.

In order to protect any such assets in the event of a relationship breakdown then formal legal agreements need to be in place as follows.

Declaration of Trust

Where one party plans to purchase a property with their partner and they are contributing all or most of the deposit it is possible to protect that interest with a declaration of trust. The existence of this declaration of trust is registered at HM Land Registry and this sets out the legal ownership of the property.

Because there is no law dealing with cohabiting couples then the way that their property is dealt with relies on land law principles and therefore it is possible to put in place a declaration of trust which sets out how they will own the property going forward. This is always recommended in the case of unequal contributions.

This will only deal with the property though and no other issues and is generally used where the property is jointly owned. A cohabitation agreement may be more suitable where a property is already owned in one party’s sole name but their partner plans to cohabit with them.

Cohabitation Agreements

These agreements can be used where a party plans to live with their partner in a property where all or part of the deposit has come from a family member by way of a gift. An agreement can state for example that the property will remain the asset of one party only, or that the deposit shall remain their property and any equity over and above that amount is divided in a certain way.

The benefit of a cohabitation agreement as opposed to just a declaration of trust, is that it can also set out other issues such as who should pay what in terms of outgoings, how contents may be divided in the event of separation etc.

Pre-Nuptial Agreements

These are used when the parties are planning to marry. It is important that a number of steps are taken to give any pre-nuptial agreement the weight it needs to be upheld.

An important case in the Supreme court in 2010 (Radmacher v Granatino) laid the foundations for pre-nuptial agreements going forward. The court said that on divorce the courts still need to adhere to s.25 of Matrimonial Causes Act and consider ‘all the relevant circumstances’ of the case when deciding how to divide the parties’ finances on a divorce. No agreement can override the courts power to make an order that is fair in all the circumstances, and a pre-nuptial agreement cannot prevent a spouse from applying to court for financial provision.

However, a pre-nuptial agreement will have a substantial impact on the judge’s decision in many cases and the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement. This means that pre-nuptial agreements should be upheld provided that the appropriate steps have been taken.

It is very important that the pre-nuptial agreement is drafted by a solicitor and that both parties received independent legal advice on the terms of this and the solicitor will ensure that all other procedural steps are taken to give the agreement the best chance of being upheld. This means that the agreement must be freely entered into, without any pressure
or duress, and this should be discussed and agreed as far in advance of the wedding as possible.

The parties must fully appreciate the implications of the agreement and it is important to obtain specialist legal advice and to also deal with financial disclosure before entering into such an agreement. It must also be fair to hold the parties to the agreement-provided that the agreement is properly entered into and the legal tests have been met, you should be expected to be held to the terms of the pre-nuptial agreement.

The longer a marriage lasts following a pre-nuptial agreement being signed, the greater the chance it may not be fair to hold the parties to its terms because of unforeseen changes in circumstances. Therefore, it is important for there to be a review clause in the agreement so that you can assess whether the terms continue to be fair in light of any changes of circumstances.

For more detailed and specific advice please contact us on 0161 980 6099 to make an appointment or email our family law solicitor Sarah Birdsey at [email protected]