How to protect your money when helping to finance a child’s diversification project

It is increasingly common for parents to give money to their children to help them buy a property or set up a new business. You may intend this purely as a gift to your child to help them with their new venture not appreciating that in the event of a separation or divorce, that gift may be “lost.” 

How can you protect this money if your son or daughter subsequently divorces? 

Loan or ownership: You can protect your investment in the new venture by either taking a share in the ownership or making a loan which may also then be protected by taking a charge. If you opt for ownership your advisers can ensure that you are registered as one of the co-owners in the appropriate proportion. So, for example, if you are contributing 30% of the purchase price for land or buildings, you can be registered as a co-owner (or one of the ‘tenant in common’) of the property with a declaration of trust which records your 30% interest and any other intentions. 

Alternatively the money can be treated as a loan which can in turn be secured by a charge taken over land or other assets, such as glamping pods or shepherds huts. The loan could be repayable at a future date or on a trigger event and can be interest bearing or interest free. Whatever terms you agree you should ensure that the arrangement is properly documented. You may not really expect that the loan would actually be repaid but in the event of divorce or separation, you can be reassured that your money should fall outside of the dispute. 

Setting up a trust: another option is to set up a trust to ring fence your money. This would need careful consideration by your professional advisers as in some circumstances trust funds can be taken into account by the courts when considering divorce settlement.

Pre or post nuptial agreements: a pre-nuptial agreement prior to marriage or a civil partnership or a post-nuptial agreement shortly thereafter sets out how the couple wants financial matters to be dealt with in the event of a separation or divorce. Such agreements may be upheld by the court unless there has been a significant change in circumstances; if there is not proper provision for children or if there are other factors which would make it unfair to hold anyone to the agreement. 

There may be tax implications to consider with each option so you and your son or daughter will need advice before entering into any of these arrangements.

For advice on family matters please contact us on 01653 692247 or through our online enquiry form.