The family home is, in almost all cases, the central consideration for a separating couple. There are different scenarios where this question may arise and the outcome will depend on:
- Whether the separating couple are married / civil partners or not; and
- Whether the deposit was paid as a gift or a loan, and whether there are any documents confirming this.
For unmarried couples, the starting point is quite crude and the way in which the house is dealt with starts with the records held at the Land Registry. If the money paid by the parents is to be returned to them, then this may be recorded at the Land Registry as a loan or ‘charge’.
There are no fixed answers when it comes to finances on divorce, with the court considering what is fair and considering whether or not an equal division of assets is fair or not.
If one of the parties, or indeed the parents, wish to argue that the Land Registry record does not properly reflect what they intended, then this can potentially be challenged through the courts. There would need to be clear evidence of the contributions and everyone’s intentions (i.e. was it a gift or a loan?) if the claim is to succeed.
Married Couples / Civil Partners
For a married couple, the court is less concerned about following the specific records and the Land Registry and more focussed on dealing fairly with the parties’ assets.
Two of the key principles that the court takes into account are:
- the parties’ needs; and
- that the family home usually has a central place in any marriage
For these reasons, the court may not be readily open to arguments about a payment from one parties’ parents towards the home. The court may have no choice but to look at the money in the house (the equity) and to simply question how this money can best be used to meet the parties’ needs.
However, there are some circumstances where the court may find it is able to consider taking into account the source of the deposit:
- If there is a formal loan agreement detailing how much has to be repaid and when, then the court may well take that into account when considering how much equity there is in the property. However, even if a loan agreement is taken into account, the court may find that if the parents were prepared to loan this money for the purchase of this house, once repaid they may be prepared to loan these sums again to their child.
- If the money can be shown as being gifted to one party, the court may be prepared to entertain the idea that this is an unmatched contribution from that party and may take this into account if there are sufficient assets available to meet the other party’s needs.
One complicating factor could be if it is disputed as to whether or not the money given by the parents was intended to give them an interest in the property or not. There may be circumstances where the parents need to become involved in the dispute between the parties so as to protect their position. This is known as ‘intervening’ in a case. This can, unfortunately, make the legal process longer to resolve and can potentially increase the legal costs of the parties (as well as any legal fees the parents incur).
How to avoid this problem
No couple likes to think about what would happen if they separate and often a gift from parents is a welcome boost at the beginning of a relationship. However, a reasonable and clear conversation at the outset may help to avoid problems later on.
The key things to consider are:
- If the parents expect to be paid back, then this should be recorded in a legal document which makes clear the terms of repayment and what would happen if the parties’ separated before the money was repaid.
- If the money is a gift but to only one party, then the couple should record this. If the agreement is that one party should receive the gift back first, before any other proceeds of sale are divided, then this can be recorded in a deed and the Land Registry informed; and if the couple are married or intend to marry, then this agreement can be carried through to a pre-nuptial or post-nupital agreement.
Resolving a couple’s finances on divorce / separation can be complicated, and the contributions from one party (or their parents) are only one potentially relevant factor. Early legal advice should be sought to ensure that the most appropriate legal arguments are pursued in the strongest possible way; and always bearing in mind the question of proportionality. The approach to be adopted for a £2,000 gift towards a million pound property may be very different to the approach for a £30,000 gift towards a £150,000 property.
There are no fixed answers when it comes to finances on divorce, with the court considering what is fair and considering whether or not an equal division of assets is fair or not. For a non-married / non-civil partnership case, the initial answer may be more straight forward i.e. what the records at the Land Registry show; but that in turn makes the legal arguments more complicated when one party seeks to challenge this.
Posted on July 16, 2018