I have lent my son a considerable amount of money to buy a flat. We were going to get a solicitor to write a legal document up to protect the money we have lent him.
Now my son’s partner has informed him that, as she has been paying half the bills, she wants her name on the deeds.
If her name goes on the deeds and they split up she would be entitled to half the proceeds of any sale of the property. I could possibly lose half of the money I have lent my son.
Property dilemma: I loaned my son money for a flat, but how do I stop his girlfriend taking half my cash if they split up?
Would it be possible to get a legally binding document written up, so if her name goes on the deeds and they do split up, she hasn’t got a claim on the property until I have received all my money back from the sale?
Or would it be a better idea to include her on the loan contract that I was going to get written up for my son?
Tanya Jefferies, of This is Money, replies: It sounds as if you have already made the loan, and your son and girlfriend are now living together in the property you helped him to buy.
We asked a legal expert to explain what steps you can take to now protect your loan.
Michael Prendergast, partner at Dickinson Parker Hill Solicitors, replies: This type of issue crops up more often with many parents now loaning or gifting money to their children to help them get on the property ladder.
Michael Prendergast: ‘if the loan is not secured against an asset, it may well not be worth the paper it is written on’
Understandably, many parents have concerns about their children’s choice of partner and want to ensure any money they are gifting or loaning to them is protected in the event of a relationship breakdown in future.
I would first point out that, just because your son’s partner has been paying half of the bills, this does not give her a right to the equity in the flat, just the right to have her name on the bill.
Paying household bills does not confer ownership.
While it may help offer evidence of a claim on the property, in conjunction with other household expenditure such home improvements, it is not a determining factor in its own right.
However, if your son and his partner put her name on the deeds then there are two different and separate ways you can protect yourself.
1) Loan agreement: Get it secured on the property
If the arrangement is truly a loan – as opposed to a gift – to your son, then you should have a loan agreement professionally prepared by a suitably qualified and experienced solicitor.
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
This should clearly record the instalment dates for repayments, specify interest rates, specify expected redemption dates, detail any penalties for missed instalments and so on.
This will give you some security for the money your son is borrowing from you.
I would also suggest that you secure this loan by taking a charge over the property, effectively a mortgage.
This is particularly pertinent if your son’s partner is going on the title deeds.
A loan agreement is great, but if the loan is not secured against an asset, it may well not be worth the paper it is written on.
If your son took out a mortgage as well as borrowed money from you then the mortgage company will likely have first charge over the property with you second.
Therefore you need to be sure that there is sufficient equity in the property to cover the mortgage and the money owed to you.
I would also suggest giving consideration to having your son’s partner as a party to the loan agreement as your son’s equity in the property on its own may not be enough to cover the money owed to you, assuming your son’s partner is going on the deeds.
2) Declaration of trust: Take a share of any uplift in property value
The other option for you would be to enter into a declaration of trust with your son and his partner, again assuming she goes on the deeds.
Effectively, you would be saying that the amount gifted or loaned to your son is equivalent to a fixed percentage of the property and that on any future sale (or other determining event) you would get your money back plus any uplift in value.
For example your share might be 25 per cent and worth £200,000 now, but the 25 per cent could be worth £300,000 in five years’ time, so this is the amount you would get back on any future sale.
In certain circumstances, if the declaration of trust option is selected, then it can be a good idea to have you named on the title deeds as well, effectively as one of the trustees of the property.
The second option is most practical for most of the families I represent as it is very flexible and can be used when a mortgage is being obtained as well.
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