Put it in writing to keep it in family
THE old adage goes 'neither a borrower or a lender be' and broadly speaking – as is true for a number of these sayings – there is some merit in the advice in certain circumstances.
If those circumstances involve borrowing or receiving a loan from a family member without any formal arrangement or documentation, the issue can be even more complex.
Falling out is not uncommon in families, certain popular television programmes feature a fair number of them in dispute. As well as relationship issues money can often be at the heart of a problem.
It is not uncommon for example for families to help out if their children or other family members are starting a business. This mix of personal and business finance could if a dispute or misunderstanding arises, if not supported by a clear agreement independently witnessed, damage relationships and take an awful lot of expensive unraveling.
Many families and communities in the UK have different ways of dealing with property and other issues in the family.
This often operates on the basis of trust within the family. Thus a parent might make money available to buy out an ex-partner, parents may make money available for their adult child to build an appropriate home to cater for a disabled child, or for the disabled adult child his or herself.
Very often parents and children in these circumstances make these arrangements without legal agreements, or the legal agreements if drawn up do not reflect the true arrangements or beliefs of all the parties.
If the parents and children do not consider the consequences of not having lawyers negotiate a legal agreement all parties are happy with, this can be an expensive omission if divorce, family breakdown or the death of any of the parties occurs.
There are many cautionary tales – including the following examples:
Where the parties to a divorce couldn't agree which family member or friend had made money available to buy the family home and who needed or wanted paying back, a final hearing to resolve the situation cost husband and wife substantial sums.
Adult children who had been given property during the marriage were told they only owned them on trust for the parents and thus the assets would count in the pot on the divorce. Again there was a full hearing and the judge decided the properties were held by the children as to 50 per cent each for the adult children vis a vis their parents.A mother was persuaded into transferring a property to her daughter in law on the basis that she would have it returned to her if the marriage failed; when the marriage failed eventually there was some success in transferring the property back to her – but she didn't get all of it back.
n In cases involving parties with multiple sclerosis and other progressive conditions, money is often made available to adapt a property that again, can or should, be subject to restrictions if the parties get divorced.
In cases where the donating parent limits the trust deed to the return of the sum lent this can operate in a rising market to the parents' detriment – though of course not at the moment!
The donating parent may be happy to make no profit and may not see the sum lent as an investment, but it is always wise to ascertain expectations .
In some communities these arrangements are based on word of mouth trust between all the parties involved. No doubt these arrangements work well for the vast majority of the time but if the marriage breaks down the exercise of working out what the parties meant can be, as I have already said, lengthy and expensive.
In effect the parties who have contributed money often need to be made parties to the proceedings and in turn incur significant costs. So what may have initially been a gesture of welcome goodwill might become a costly and bitter experience.
It saves time and often very considerable cost if these arrangements can be reduced to writing, and if the parties concerned make quite clear to their solicitors what their intentions are if relationships break down.
The moral has to be that families do trust each other until relationships break down – then all bets are off. It is better to be safe than sorry and end up having to spend large amounts on lawyers. If you spend a much smaller amount of time and cost with your lawyer in considering the consequences before the money is contributed, then if the worst occurs the whole family may benefit.
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