With the ever rising price of property, it is no wonder that parents are frequently providing their children with financial assistance to purchase their first home or an investment property.
Unfortunately the nature of relationships is such that we cannot guarantee that things will not change in the future, such as when serious family fall-outs occur, or where complications arise with new life partners. As such, when providing financial assistance to our children, or when receiving financial assistance from our parents, we need to consider this as an investment and as such ensure that it is appropriately protected.
There are two ways in which financial assistance from a parent can be characterised for the purpose of family law, both of which will have a very different impact on the effect of a property settlement should the relationship break down.
Financial assistance can be characterised as a gift or a loan. The most notable difference between a gift and a loan is that monies provided as a loan are always seen as repayable.
Whereas a gift will be seen as a contribution, the value of which will be determined at the time of separation, a loan will be considered a liability of the relationship and will minimise the asset pool available for distribution.
This is a very important distinction as in relationships of a long duration; contributions made at the beginning of the relationship may reduce so much over time so as to no longer have any significant weight in a property settlement. That is, your child may receive little or no value from the financial assistance you provided.
Whether characterised as a loan or a gift there are steps that should be taken to ensure your child receives the most from your investment. We recommend seeking legal advice on how best to protect your financial investment. We have a team of highly experienced solicitors who would be happy to assist you, so please get in touch today.