Protecting the Bank of Mum & Dad – Protecting Money With Pre & Post Nuptial Agreements

June 12, 2019, By

If you are considering gifting or loaning money to your married son or daughter on an informal basis, then you should be aware of the real risk that their spouse or civil partner may receive all (or a substantial amount) of that money in the event of a breakdown in the relationship.

This is because in financial proceedings following divorce, the Family Court will generally view such monies as forming part of the assets that can be distributed, and informal loans will likely be dismissed as being ‘soft loans’ and not repayable. In order to minimise the risk of these situations arising, it is vital that:

  • Where you are gifting the money, that the gift is suitably ring-fenced within the terms of a pre-nuptial or post-nuptial agreement
  • Where the money is a loan, that this is documented in a formal loan agreement and ideally a legal charge (mortgage) for security on any property owned.

Following substantial changes to this area of family law in the past decade, pre-nuptial and post-nuptial agreements (provided they are properly drafted and freely entered into, with full financial disclosure) will, generally speaking, be given effect by the Family Court as part of the discretionary exercise it undertakes, provided there are no circumstances which would mean that it would not be fair to hold the parties to the agreement. For the avoidance of doubt, such agreements cannot exclude the Family Court’s jurisdiction.

Please note that there may be tax implications in relation to any gift or loan. If you are considering making a gift or loan to your son or daughter, you should always seek specialist legal and tax advice in respect of your options.