Property clinic: A legal agreement can make a gift revocable in the case of a break up
I am wondering what are the rights of a parent in the event of paying for the entire deposit for their daughter to purchase a home in her name when she is now getting separated and her spouse has not contributed to this deposit but wants half of the value of the home, which is a family home.
There is also an investment property that the parents put down a hefty deposit on and this is being viewed as a marital asset also and the spouse again put no money into, nor contributed towards, the mortgage of this property but wants half of this also.
There are two children and both properties are in the daughter’s sole name – the spouse contributed to paying the mortgage on the family home only.
Would the parents who paid the deposits on these properties be entitled to their money back or would these monies come into reducing what the spouse is entitled to?
All assets owned by spouses, either jointly or individually, will be taken into consideration by a judge when making a decision on the division of marital assets, regardless of how these assets were acquired or funded.
You do not mention whether the payment of the deposit was a gift or a loan?
If the payment was a loan and there is legal documentation to support this assertion, then the parents who paid the deposits may be entitled to seek repayment of the loan. However if there is no documentation to support the contention that the payment was a loan it is likely that the payments will be considered gifts.
In the case of a gift the parents are usually not entitled to their money back. In certain very limited circumstances, parents who contributed to the purchase price of a property can claim an “equity” or a beneficial interest in that asset. However, it is more common today that the parents giving the gift will have been asked to waive, or at least postpone, any such equity in favour of the bank financing most of the purchase price.
Both spouses involved in the separation will each be advised by their solicitors to engage in the mediation process to try and reach a solution to their difficulties. If they are unable to reach an agreement amicably or through the mediation process then they run the risk of a judge dividing the assets by court order in a manner which may not provide for the return of any money to the parents.
To avoid a situation like this arising, parents intent on helping their children to buy a house should only do so with the guidance of their solicitor. An agreement can be put in place which makes the gift “revocable” on the occurrence of certain events such as, in this case, the break up of the marriage or the transfer or sale of the property.
Alternatively a loan agreement which provides for the method and timing of the repayment can be entered into. Loans for deposits can be secured by a second legal charge over the property, as a bank will more than likely hold a first-ranking mortgage, in which case the parents will have an interest in the asset itself in the event of the loan not being repaid. The second charge is only of value to the parents if there is some equity in the property in excess of bank debt.
The parents in this case should consult their solicitor to ascertain what documentation, if any, was put in place when they made the payments to their daughter in order to establish if there is any way they can have the money returned to them now.
Samantha Geraghty, Solicitor/Partner at P O’Connor & Son, Co Mayo