If a parent loses their partner or spouse, it will probably make them think about their own mortality and their relationship with their children – both practically and financially. They may consider how their own needs will be met as they grow older and also about leaving their estate as an inheritance.
When they plan for their long-term future, it is not unusual for an older relative, usually a parent, to consider transferring their home into the name of an adult child, especially if they would like the child to come and live with them so as to either have somebody to help look after them, to avoid loneliness or even for them to see any grandchildren/help with child care.
Parents may suggest selling and combining the money with resources from their adult child so as to upsize their home to have a property big enough for a multi-generational home, but sometimes, especially if they are reluctant to move from their familiar surroundings and their home is or can be made suitable, they may suggest that the family live at their home instead.
As part of that re-arrangement, the parent’s home could be transferred to an adult child.
The complexities of continued co-ownership are beyond the scope of this piece and it is assumed that the parent does not wish to remain an owner of their former home and transfers it to their child.
That transfer could either be a gift or a sale.
My father wants to give me his house if we go to live with him – would that be taken into account if my spouse and I divorced?
Were you to split up (which is not what you are planning) ALL of your assets – both property, savings/investments/business assets and pensions are taken into account and the starting point is that each of your should have equal rights, no matter who brought that asset into the marriage. If your marriage is not a ‘short marriage’ and the assets you have do not exceed your combined reasonable needs that equal sharing is the starting point and whoever owns the house, it is an asset that should be shared. It also applies to any business either of you own and pensions, so for fairness, everything that you own between you is taken into account.
If the house is a gift, then it most likely has ‘strings attached’ and any obligations towards your father would be taken into account on divorce.
It would be prudent to make any conditions and expectations clear and in writing before the transfer takes place and your father should discuss that with the property lawyers who act for him in the transaction.
My father wants to sell me his house – and still for me and my spouse to live with him – what difference does that make if we get divorced?
If there is to be a sale, then the resources to buy will be from the your ‘pot’ of resources as a couple and would represent a movement of savings, realising sale proceeds and/or taking on a mortgage liability.
Should you sell your family home to pay towards buying a parent’s house, then that means that money that your spouse has a right to share moves into a different asset – that property.
Parents may sell within their family at an open-market value or at a price determined by some other consideration. If the price is not the full market valuation, then that would be ‘at an undervalue’
An undervalue transaction can possibly involve an element of ‘gift’ which is a lifetime disposal which can be added back into an estate when the giver dies. Any taxable element diminishes over time, but that should be looked at both by you and by your father’s solicitors when working out the mechanics of the sale. Becoming his carer may affect what the level of ‘undervalue’ actually amounts to, but that is a matter for a qualified and regulated accountant and should be looked at as part of the decision about a sale.
If there is tax to pay, then that would be taken into account in a divorce as indeed should other obligations that either or both of you owe to your father.
My father wants the property to be in my sole name, does that make a difference?
If the property is bought in your sole name, your spouse still has rights – both as a matrimonial home in (your) sole ownership – which can be registered or otherwise by their interest in the property (both under trust-law and family law) being registered as a restriction so that you cannot transfer the property without their rights being respected.
All assets are taken into account, even if not fully shared. How that ownership came about and who gets the credit are largely unimportant unless there is a good reason to depart from the 50/50 starting point.
It is important to recognise that equal sharing in divorce is only a starting point. Very often the actual end point of the agreement or in the rare cases where a judge needs to make a decision, the court’s ruling is not mathematical equality.
There are often factors taken into account which influence what a fair outcome would be and leads to one person having more than the other, or the use of more of the assets than the other so as to meet needs, particularly housing needs. When a property becomes part of the pool of resources that the couple have, there will be some regard to the source of the ‘gift’ element of any transaction at an undervalue, but if the marriage was not a short one, then that origin would not in itself determine the outcome. However, the obligations accepted as conditions of a partial ‘gift’ could well influence a judge as to what was the right thing to do about that property, but that is not as certain as the father would want and so hoping that the judge’s view discretion will get the right result is a risk.
The full list of what a judge looks at when deciding fairness is set out in Section 25 of the Matrimonial Causes Act 1973 (as amended), but it is case-law that expands upon how the various factors might affect a proper outcome. At present, the duration i.e. short period of marriage coupled with unequal contributions to the resources available is very often a reason that equality is not to be expected on divorce. It takes a lot of reading, training and experience to spot all the factors that come into play and conduct an exercise similar to that which a judge would do to assess what deals are within the likely range of fair outcomes. Reasonable needs are usually part of that assessment and keeping promises attached to a gift of property should be presented as a ‘need’ issue even if your father has played his part in recording those agreements.
Obligations would be respected as part of ‘reasonable needs’ so your father does not necessarily lose out if he acts prudently, but it would be safer do what is possible to reduce or eliminate risk.
Will my father still have rights after we buy his house from him?
Once you buy your father’s house, unless his solicitors have put in place some reservation of rights (perhaps to remain there until it no longer suits him) then you (and your spouse) are in control of the property. Reserving rights can affect inheritance tax, so between you and your father’s solicitors, care needs to be taken about creating tax liabilities by accident.
Once the house is in your name, you can do whatever any other owner could and your father will not own it, nor be lawfully able to interfere, save anything his solicitors agreed with you at the time of transfer/sale. If you buy it in your sole name, you could transfer it into joint names with your spouse in due course, although that is not necessary for them to retain their rights.
As a non-owner and non-spouse, your father’s rights are determined by property law not ‘family law’ on divorce, so what the registers at the Land Registry say is a very strong starting point: if a non-spouse does not have rights registered, then they are at serious risk of those rights not being recognised. It would be for the seller to specify what rights (if any) they are to have after the transaction and to put in place registration if appropriate. That is not the responsibility of family members.
If you were not married, you would be as much at risk of not having rights as anybody else not noted at the Land Registry as having rights. The Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) is not forgiving of casual arrangements. Whilst trusts and rights under trusts can exist, claiming rights over land/property is very much of an uphill struggle without registration.
My father’s house used to be our family home, so what about the rights of other family members, such as a brother or sister?
Your sibling has no claim over your property and if your father dies, then they would have no claim apart from against your father’s estate. If they were left out of his Will, any possible claim would be as a ‘dependent’. If they are not supported by your father, there is no dependency to compensate for. It is only if an adult child is dependent, which is unusual, that a claim can be made and based on the level of the dependency. No support = no dependency = no valid claim.
If my father dies after he sold his house to me, could a sibling challenge his Will?
A sister or brother cannot challenge a Will made by your father simply because they do not like what it says or what they get under it. Your father is not obliged as a matter of law to make any provision for non-dependents, nor indeed you and providing he is of sound mind, can do whatever he chooses with his own money – whether in life or in death. The lawyers preparing the Will should ensure the formalities are properly respected and that the Will is valid.
How can I reassure both my father and my spouse if we buy my father’s house?
If your father is concerned that having sold the house to you and perhaps as sometimes happens, invested money into altering it so that he has his own home within your property, it is understandable that he would be worried about his own future if you divorced.
He could be worried that if you divorced, you could be pressured to sell it or otherwise disrupt his final years. A possible solution to that fear includes you and your spouse having a Post-Nuptial Settlement/Agreement
What is a Post-Nuptial Settlement/Agreement?
A Post-Nuptial Settlement/Agreement is a formal way to agree arrangements after marriage (post-nuptial) without intending to split up, but putting in place an agreement that would still apply even if you did divorce. In some countries people are obliged to have an agreement in place before they marry (pre-nuptial settlement or ‘pre-nup’), but that is not obligatory in England and Wales. In order for agreements to be respected and the judges’ wide discretion as to doing what they consider ‘fair’ in each case to be constrained, various conditions need to be met.
If you have a post-nuptial settlement so as to facilitate the change of ownership of your father’s home – whatever else it provides – it can include a provision that your father cannot be ‘turfed out’ as a consequence of relationship breakdown/divorce. That would not affect financial claims so far as each spouse’s share of the pot is concerned – although that could be included as a declaration in the PNS – but it could – in an agreed and practical manner reassure your father that he need not live in fear of losing that security which his sale to you is supposed to give him.
A PNS would also allow your spouse to know what would be expected if you split up and allow an input so as to have an agreement reached when the emotion of separating and divorcing did not cloud your minds.
When should we discuss a Post-Nuptial?
As the need for the agreement is primarily to reassure your father and regulate arrangements after a transfer of his house, it would be prudent to discuss it with your father’s solicitors and finding out (and perhaps negotiating) what reassurance he needs so as to not fear losing his home.
You need to discuss the price and any considerations going into deciding on that, so that if any element is a gift, the conditions are clearly understood by both sides.
Probably the best time to look at the PNS would be a few weeks before you invested savings or the expected sale proceeds of your present home into your father’s property as that would be when your spouse’s property rights would be affected. Another option is to do it when you know the exact arrangements for you purchase which might be when your father needs the reassurance that he cannot lose his security.
Can we do a PNS ourselves or do we need lawyers?
Part of the criteria for a judge respecting a PNS if you ever get divorced is that both people knew exactly what they are doing. Having independent legal advice is an important way of showing that the PNS is not being forced upon either spouse and is entered into freely, in the knowledge of what it means and how it alters existing rights. Without independent legal advice, the spouse who feels they are getting the worse of the deal at the time of a divorce could claim they had been railroaded, that some kind of fraud (non-disclosure) had taken place or that they had not properly understood the consequences of signing the PNS.
When a PNS has been done properly, it not only represents the starting point, but also the end-point on the issues that it covers, which coupled with your father’s solicitors having asked for it having the correct provisions – the right strings being attached to the transfer – would create a legal framework under which the transaction has served its purpose.