Why are parents insisting on pre-nups for housing deposits?

Buying a property can be a challenge for increasing numbers of young people across the UK, particularly in light of the uncertainty over property prices and the caution currently being exercised by sellers and lenders on the back of the Coronavirus crisis.

Lenders are requiring often significant deposits to secure a deal. This presents a particular challenge for first time buyers, who sometimes don’t have any equity that they can use to finance a purchase. So they might look to their parents to help them in this situation.

Parental concern over potential for divorce

The signs are that parents are becoming concerned about handing over considerable sums of money to help their grown-up children take that vital first step on to the housing ladder.

This is not because parents are not as generous as they once were. Far from it, the parental urge and willingness to help is as strong as ever. But in an age where divorce is all too common, they are worried about what could happen to that money should their offspring separate from their partner further down the line.

If they have, for example, gifted £20,000 to their son or daughter to fund a purchase, there is a danger that if that son or daughter marry, that gift will be absorbed into the asset pool and the equity resulting from it could end up being shared with the spouse.

Why parents are asking for pre-nups

The Law Society has confirmed that there is a rise in the number of parents who are insisting that their child enters into a pre-nuptial agreement (or often post-nuptial agreements if they are already married), in order to try and better protect the money they are giving. This is so that it only goes to their child and not the spouse in the event of relationship breakdown.

Certainly, this chimes with my own experience as a family lawyer. Pre and post-nuptial agreements have increased significantly in recent years. The occasions where this has been instigated by parents looking to protect the gift of a housing deposit has contributed to this.

Pre-nups and post-nups are normal now

Pre and post-nuptial agreements are becoming ever more normal and widespread amongst marrying or married couples of all ages. Today’s young generation have a pragmatic attitude to the idea of such agreements and generally tend to be unfazed by the prospect of entering into one themselves. These agreements and the sensible reasoning behind them have become a feature of our age.

Without such agreements, particularly where divorces and separations are now so widespread, there is a chance parents handing over large sums would, eventually, see half of that money credited to their son or daughter-in-law should that relationship ever breakdown. People are eager to protect against that.

Pre and post-nuptial agreements can cover just a deposit. More commonly, the couple will agree that they should cover other things as well, to include other finances brought to a marriage and a wide range of eventualities.

Whilst pre and post-nuptial agreements are not legally binding in the true sense, they carry strong persuasive weight if drafted correctly.

With the UK’s property market being as it is, I would expect parents anxious to protect housing deposits will continue to play a significant supporting role in bringing agreements into being.

A good pre or post-nuptial agreement drawn up by experienced lawyers should provide certainty for all parties.

This article is part of a series on the various benefits of pre and post-nuptial agreements:

 

For more information you can watch our video: