Clear And Formal Documentation Needed To Protect Wealth In Future Disputes

A northeast divorce lawyer is warning families to take action to protect their wealth as the Bank of Mum and Dad becomes recognised as a top 10 provider of finance for property in the UK.

Cost-of-living increases, particularly mortgage and house price rises, have led to a significant rise in parents lending money to their adult children. With one recent study finding that more than two thirds of Generation Z will depend on the Bank of Mum and Dad for significant expenditure such as homes, cars and weddings.

Now specialist northeast divorce lawyers at Irwin Mitchell are advising families to ensure they take action to prevent their loved ones losing out in the event of a separation or divorce.

Issues generally arise when it is unclear whether money given from parents to their adult children is classed as a gift or a loan as they are both treated differently during divorce and for inheritance tax purposes.>

An example of the issues that can occur could be if one partner is given money for a deposit to buy a house with their spouse. In the event of a divorce, if this is considered a gift it could be ignored when making decision about assets, but if it is deemed to be a loan, then it may need to be repaid before any assets are divided between the two parties.

Wayne Lynn, a Partner at Irwin Mitchell in Newcastle, said “The increasing reliance on the Bank of Mum and Dad for significant financial support means its ever more important to document any loans or gifts correctly to protect loved ones in future.

“There are various ways that this can be achieved, either through clear and formal loan agreements, pre and post nuptial agreements and cohabitation agreements for those who are not married.

“While it may sometimes feel like unnecessary formalities when dealing with family members, it’s only through clear and legal documentation that everyone involved can be sure of the clarity and protection in the event of any future disputes.

“While it’s not the most romantic of thoughts, half of marriages end in divorce so it’s vital that families communicate openly and document their financial arrangements to avoid future disputes and ensure fair outcomes."

Read more about Irwin Mitchell's expertise in Divorce and Family Law.