Bank of Mum and Dad – Growing number of parents seeking to recover loans from child’s ex after relationship breakdown
21st August 2024
An increasing number of parents who have loaned their children and children’s partners money for property purchases, weddings or even fertility treatment are seeking legal advice to recover their money after a breakdown of the child’s relationship.
Our Family and Matrimonial team are seeing an increasing number of cases where the well-meaning ‘Bank of Mum and Dad’ is trying to retrieve its money from their child’s former partner or spouse following a split.
With one in three first time property purchases made by couples attempting to overcome the UK’s unaffordable housing market we are expecting the tidal wave of enquiries to continue in the coming months and years as relationships break down.
In most cases the disputes are over whether the cash was initially intended as a gift or a loan. But without a prior formal agreement it can be difficult to prove intent at the time, leaving the other party room to argue it was a gift that doesn’t need to be repaid.
“The difficulty occurs when what was an informal arrangement is later looked at in a different light. What was a non-issue in happier times can become a significant area of dispute.”
It is important for a court to make the distinction, as gifts will be included in the matrimonial pot of assets to be distributed upon divorce whereas loans are classed as a liability to be repaid. In such cases, loans will be deducted from the total assets which results in less overall to divide.
The loan can often represent a significant portion of the assets so it really does make a difference as to whether or not it is an asset that can be split, or something that will not be entered into the calculations.
Issues can be further complicated by whether the courts are dealing with hard liabilities – mortgages, credit cards or commercial loan repayments – or “soft” liabilities such as loans from family and friends without formal repayment terms. In such cases of soft liabilities a court may decide there is less priority for repayment.
When acting for a person whose family has advanced the money and is insisting it needs to be repaid, we will look for evidence that supports it was a loan. Is there a written agreement? Were there emails? Have repayments been made? Quite often we find there may have been really large payments made shortly before the issue of proceedings. In such cases we will go through bank statements, ask questions on such payments and request further evidence.
Where property is concerned, parents should consider registering a charge over the title to the property, which in effect sets out clearly that the loan is there to be repaid.
Pre and post nuptial agreements also offer very clear protection while declarations of trust between parents and their children and / or their children’s spouses also give a clear record of intent.
For further advice on this… or any other Family and Matrimonial matters, please contact our expert team who will be happy to assist.
Article written by Head of Family and Matrimonial, Solicitor Kate Booth.