How can I protect any gifted money I give to my son/daughter in helping them set up their first home if a cohabiting relationship fails?

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It's not uncommon for parents to do everything they can for their children when it comes to setting up their first home, with those owning their own business often in a more comfortable position to help.

However, what used to be a case of starting a "bottom drawer" of bedding, towels and kitchen utensils has now turned into hard cash given the scarcity or non-existence of 100 per cent mortgages.

It therefore seems to be more the norm within our family law department that when things go wrong in a cohabiting relationship, both the client and the parents simply expect the money (which they gifted to their son or daughter) to be automatically returned to them or excluded from any financial settlement.

But this is not the case.

If money is gifted to your son or daughter, and that money is paid towards the purchase of a jointly-owned property, the effect is that the gift you make is a gift to both your child and his or her partner.

There are, however, ways of protecting this money should the relationship fail, and whilst it is seen as unromantic at the time, it can save an enormous amount of upset and legal debate if things do go wrong:

  • There is the ability, at the time of purchase, for the property to be held as tenants in common in unequal shares reflect the sum gifted by one set of parents to their son or daughter. This needs to be discussed with the conveyancing solicitor in order that they can prepare the conveyancing documentation correctly.
  • You could prepare a Declaration of Trust which would state that should the relationship fail, then the payment received from the parents with either be returned to the parents or be passed for the benefit of their son or daughter.
  • You could enter into a Cohabitation Agreement which would set out both parties' expectations should the relationship fail. Although this is not a water tight document, it does set out both parties' understandings at the time the property was purchased. It also goes a long way in convincing a Court of how a dispute (with regard to a jointly-owned property) should be resolved. These documents are prepared by a family legal adviser and can be tailored to meet individual requirements.

The purchase of a property is usually one of the most expensive purchases one can make, yet the legal ramifications of that purchase are so often overlooked until things go wrong, at which point it is too late. We therefore urge young couples and their parents to take time to think about the issues surrounding the purchase of a property and put in place contingency plans.

It should be remembered that whichever safeguard is put in place, it will only ever affect the relationship if things go wrong. It should therefore not be seen as a mar on the relationship, as once prepared, it is hoped that the document will never see the light of day again!