Financial agreements, young professionals and the bank of Mum and Dad

The rise in the cost of living may see many struggle to get on to the housing ladder as first-time buyers.

Savills have estimated that in 2024, an average of £55,572 was being gifted or loaned to adult children by their parents in each purchase transaction, with 52% of first-time buyers receiving assistance from their immediate family to purchase a property.

Where the adult child concerned has a spouse or partner, families may be concerned about protecting any wealth which has been handed down against the repercussions of a future separation.

The law on financial provision for separating or cohabiting couples

In Scotland, the Family Law (Scotland) Act 1985 provides the framework for financial provision upon divorce or dissolution of a civil partnership. The Family Law (Scotland) Act 2006 explains the law which governs cohabitation.

Gifts and inheritances in marriage or civil partnership

The law states that matrimonial property includes all property acquired during the marriage unless it was gifted by a third party or inherited. If said gifts and inheritances are used to purchase further property, then the original gift or inheritance will be “converted” into matrimonial property. For example, the gifted house deposit is not matrimonial property – but the resultant house or flat is.

A property bought prior to a marriage/civil partnership with the intention of it being used as a family home will also be “in the pot” for division on divorce/dissolution.

Claims for financial provision with cohabitating couples

Parties living together as though they are spouses (but without formalising their relationship by way of a marriage or civil partnership) will fall within the current definition of “cohabitants” as provided for in the 2006 Act. From their date of separation, cohabitants have one year in which to raise a financial claim against their former partner. In considering such a claim the court must ascertain whether either party has derived any financial advantage from the contributions of the other; or whether either party has suffered any financial disadvantage in the interests of the other party or any relevant child. Often individuals will argue that their partner has been economically advantaged by the wealth they have brought into the relationship, and that they have been conversely economically disadvantaged by allowing their partner to share in that wealth during the relationship. As such, it is imperative that any significant funds are protected at the outset of the relationship.

Protecting financial positions with nuptial and cohabitation agreements

To avoid or limit the scope for disagreement over parties’ respective financial positions upon separation, whether that be divorce, dissolution of civil partnership or cessation of cohabitation, more and more people are opting to record their wishes in cohabitation, or so called “nuptial” agreements. Such agreements are generally considered to be binding in Scotland provided that certain criteria are met.

Such agreements are commonly used to ringfence property or funds which have derived from the pre-matrimonial, civil partnership or cohabitation wealth – to exclude it from any financial claim at a later date.

How do I broach the topic of financial matters with my partner?

There may be an understandable reluctance to raise the question of such an agreement with one’s beloved, particularly when there is a disparity in wealth, or a fear of being seen as pessimistic. Nonetheless, agreements setting out what will happen to the parties’ respective wealth at the point of separation are a useful took in protecting their finances and saving on legal costs and conflict later on. It is a conversation which is best to be broached as early as possible- certainly before any funds have changed hands.

Should you require any advice in connection with wealth protection prior to your impending marriage, civil partnership or cohabitation please get in touch with one of our family law experts.