If a parent has helped with the deposit on your home, it is natural to want to understand how that contribution can be protected if the relationship later breaks down. In this Q&A, Alice Daniel, Senior Associate, explains how pre-nuptial and post-nuptial agreements can help safeguard family contributions, as well as the other legal options that may be available depending on the circumstances.

If my parents pay the deposit on our home, can a pre-nup protect their investment?

Yes, a pre-nuptial agreement can specify the contribution made by parents, clarify the terms of the contribution, and ringfence it. In a divorce, the family home is typically treated as the primary matrimonial asset, and it is therefore assumed that all of the equity is available for division between the two parties. If you or your family members want to protect funds that have been contributed to the property before marriage, a pre-nuptial agreement is a very helpful tool to do this. A post-nuptial agreement can do the same if the contribution is made after marriage. The agreement must still meet the test of fairness and provide for the other party’s needs to be met, which would be considered in the context of the financial position at the time of preparing it.

Are there any other ways to protect the investment?

Yes, depending on the circumstances of the contribution, for example, whether it is an outright gift to one of the spouses and intended to be retained by them, or whether it is a loan intended to be repaid to the parents upon sale, a declaration of trust or a legal charge could be drafted. If the contribution to the property has been made before marriage and a declaration of trust has already been prepared, it will often become obsolete on marriage so a pre-nuptial agreement which reflects the declaration of trust would be the best way to protect the funds in those circumstances.

If we sign a pre-nup, is it legally binding?

Unlike the United States, pre-nups are not legally binding in England and Wales; however, if they meet the specific criteria that have been set out in extensive case law, then they are highly persuasive and likely to be upheld upon divorce.

Can we protect my parents’ investment if we are already married?

 Yes, you can prepare a post-nuptial agreement that incorporates all of the terms a pre-nuptial agreement would to protect the funds.

If we don’t take steps to protect their investment, what will happen when we divorce?

The starting point is that the family home is a matrimonial asset and the equity is capable of being shared equally between the spouses.  If one spouse’s parents have made a contribution that is not protected and the other spouse does not agree to it being accounted for upon divorce, which is sadly very often the case, financial proceedings would need to be instigated between the two divorcing parties, which is expensive in itself, but in addition, the parents would need to instigate intervenor proceedings and be separately represented. These proceedings are often stressful and very costly. As such, having a pre-nuptial agreement in place to protect family contributions on the family home is therefore a great insurance policy against this.

Taking advice at an early stage can make a significant difference when it comes to protecting a parent’s contribution to a property and avoiding uncertainty later on. Whether you are planning to marry, are already married, or simply want to understand the options available, specialist family law advice can help you put the right safeguards in place. If you would like tailored advice on a pre-nuptial agreement, post-nuptial agreement, or other protective arrangements, the family law team at JMW can help.