Family wealth lost when children divorce

Even someone who takes only a passing interest in the news must have heard about the latest multi-million pound lottery winners. Dave and Angela Dawes of Wisbech have won just over £101 million in the Euromillion lottery, having only played on two previous occasions.

They are clearly overwhelmed by their good fortune and have publicly announced that they intend to make generous gifts to people who have helped them during the course of their lives and this will undoubtedly include family members.

Whilst most people are not in the fortunate position of having such fabulous wealth the provision of money by grandparents, and more commonly parents, to the younger generation to help them get on to the housing ladder is not uncommon. However, when monies are provided to children or grandchildren there is rarely a discussion about the terms on which the money is provided and this can cause real difficulties later on when the child concerned is purchasing a property with a partner or spouse. Little or no discussion is entered into about what will happen if that relationship breaks down and this is causing increasing difficulties in situations involving family breakdown.

Having specialised in family law for about 20 years I have noticed the increased involvement of other family members, generally parents, in proceedings which follow a relationship breakdown. When I was first in practice this was the exception and whilst it still does not occur in the majority of cases there is an increasingly significant minority of cases which involve the parents of one spouse or the other in the financial applications arising from a divorce. This causes a huge increase in the emotional distress and stress of such proceedings together with an increase in the costs.

All too commonly in those types of cases parents take the view that they are providing their children with the benefit of financial assistance. It follows as a natural consequence that the child’s spouse also benefits but if asked the direct question as to whether the money should be divided between the child and their spouse if the marriage broke down most would, understandably, answer "no". It is not unreasonable to feel that the money has been made available for your child and not for distribution between them and their spouse if it all goes wrong. But where there is no discussion, and nothing put down in writing, this situation can all too often lead to both the husband, the wife, and one set of parents, fighting over the money in front of a Court and attempting to recall from many years previously who said what to whom and when.

The parents become involved in proceedings incurring legal fees themselves, then proceedings become lengthier and more costly to the divorcing couple and there is then potential for guilt and resentment arising between the "child" and his or her parents.

As with many areas of law these types of difficulties can be avoided by taking legal advice before advancing the money and ensuring that agreements about the provision of the monies are set out in writing. In an age where pre-marital agreements between spouses are increasingly popular, it is becoming socially acceptable to consider and discuss the prospect of a relationship breaking down before it legally begins. The same should apply to monies provided by any family member to one spouse or the other particularly in connection with the acquisition of property. Many baulk at the suggestion of paying maybe £1,000-£1,500 to ensure the appropriate agreement is in place at the outset but, if this both safeguards your money for the benefit of your child, and prevents you and your child spending several thousands of pounds in legal fees should the worst occur, it is money well spent. In law, as in medicine, prevention is better than cure.

So, if you intend to provide monies to a child and their partner, to help purchase a property, consider the following:

1. How should the monies be treated in the event of the relationship breaking down?
2. Are monies provided as a loan or a gift?
3. If a loan or a gift, to whom?
4. If it is a loan, what are the repayment terms?
5. Is it intended that the monies that you provide should be for a fixed repayable sum or should they be repayable as a percentage of the value of the property?

Discuss the above options with your legal adviser. Decide what is really right for you. Discuss the position with your child, and their partner, and then get your solicitor to set out the basis on which you are prepared to provide the monies and get a formal agreement, which you all sign, which deals with all monies.

And finally, do not leave it until the day before your child is due to exchange contracts on their dream "must have" home to address the issues.

For further information on this article or related matters please contact Karen Moores, Head of Family Law at Sydney Mitchell on 0121 698 2200 or fill in our on-line enquiry form.