bank of mum and dad

Have you helped your adult child to buy their property? If you have, you are one of a growing number of parents who do so. According to MSN Money, the average price parents are prepared to contribute to their child's first home is £21,314. But what happens to your investment if your child lives with someone or gets married and then that relationship breaks down? There is a risk that you could lose your investment.

Loans

In January 2008, the Times reported on a recent High Court case. Ms P and Mr LB were an unmarried couple, Mr LB's parents gave them £200,000 with which to buy a new home. When Ms P and Mr LB decided to separate, the house was sold and realised just under £100,000. The judge awarded Mr LB's parents £50,000 of this. At the time of purchasing the property, Mr LB was getting divorced and he and Ms P decided that the new property would be put in her sole name, in an attempt to prevent Mr LB's wife from trying to make a claim against it. Mr LB's parents relied on an ambiguous letter as evidence of their investment in the property and maintained that the £200,000 had been a loan and as such Ms P needed to pay it back. The judge did not accept this.

In another case, an elderly gentleman gave all of his savings to his son and daughter - in- law so that they could purchase a home in which he could live with them. However, the son and daughter - in- law then got divorced. The elderly gentleman intervened in the court proceedings but the judge decided that he was not entitled to have his savings paid back to him.

Transfers of property

Where a father purchases a property in the name of his child, the law presumes that the father is making a gift of the property to the child unless there is evidence to the contrary. Curiously, the law treats transfers between mothers and their children differently in that in this situation there is no presumption that these are gifts. There is a question as to whether this presumption continues when the child grows up. This issue has not been tested by the UK courts but there has been a recent case in Canada which decided that, once a child becomes an adult, there is a legal presumption that a transfer of property made by a father was not meant as a gift but rather that the grown up child holds the property on trust for his father. The above cases highlight how important it is to have clear evidence of all parties' intentions at the time the loan or transfer is made. If you have helped your child buy their property, or are planning to, you need to have a legally binding

document drawn up which clearly sets out the arrangement. Such a document (known as a Declaration of Trust) can assist in preventing unnecessary and protracted legal arguments and often substantial costs at a later date.

If you would like to discuss any of the above issues, please contact Kate Chester,  in our Family team by email at kate.chesters@bllaw.co.uk

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