The question of whether a parent’s financial contribution can be claimed back is a dilemma often encountered either by parents wishing to claim money back when their child divorces or by (ex)spouses opposing repayment.
Such cases generally crop-up at the time of divorce and certainly where the division of matrimonial assets becomes an issue. As a first step in matrimonial finance matters, parties are encouraged to negotiate settlements and consider mediation where possible prior to making any application to the court. The issue of repayment to a parent can be discussed and an agreement reached between separating spouses in mediation. At Stephensons we understand that this may not always be possible and are on hand to help you navigate negotiations and the court process should that be required.
The route for financial remedy applications is via the family court. Where there is a third party (such as a parent) wishing to claim a financial contribution back, this matter should be dealt with, and the court notified, ‘at the earliest opportunity’ in such proceedings; it is a preliminary issue that will need to be dealt with before the court can go on to make an order in relation to settlement between the spousal parties.
How do I make an intervenor application?
As a third-party parent or family member (the intervenor) you should make an application known as a part 18 application to the court supported by evidence, setting out your proposed interest in connection with the proceedings. You may then be added as a party for the court to resolve the issue.
On receipt of your application, the court will make directions in respect to your claim. These are likely to include the filing and serving of statements in relation to points of claim and points of defence, an order for disclosure with respect to the documentation you seek to rely upon as evidence, inspection of that evidence by the other party, and any other witness evidence. There will then either need to be a ‘trial of preliminary issue’ listed, or consideration given to arbitration so a decision can be made with respect to your claim before the spousal parties attend their financial dispute resolution (FDR) hearing.
A gift or a loan?
Where a sum of money has been provided by a third party, the first question is whether the advance should be regarded (in strict legal terms) as a gift or a loan; the distinction between is not the end of the matter however!
The next question is whether a debt is technically enforceable. You may or may not have heard the terms ‘hard loan’ and ‘soft loan’; the former is a loan which must be repaid within a certain timeframe, the latter is one where expectations are less certain and less urgent. A ‘soft loan’ is common in cases where money is received from family members. There are a variety of circumstances that may determine whether a loan falls on the hard or soft side of the line and a judge has a discretion to disregard the existence of a soft loan in his / her calculations with respect to what is in the marital pot when considering settlement between the spousal parties.
The best way to evidence that an advancement was a loan with an expectation of repayment is if a ‘deed of trust’ has been drawn; such document would be binding and conclusive (unless subsequently set aside). You may have entered into what is often referred to as ‘kitchen table agreement’; this may be evidence of a common intention, but it is not strictly binding.
Any documentary evidence will need to stand-up to scrutiny, for example: Do you have the original? Is there evidence that it existed? Did a lawyer draft it?
If you are just at the stage now where you are intending to advance money to a family member, we at Stephensons can help with drafting the appropriate documentation to protect you should any issues arise in the future.
Rights of interest and detrimental reliance
It may be the case that a parent has advanced a substantial amount of money to a child and their spouse, that that parent moved in with the married couple and now upon their divorce, the parent seeks to show that they have an interest in the matrimonial home.
There are two different rights of interest that a person can have in property, these are ‘legal interest’ and ‘beneficial interest’.
The starting point again is what documentation there is to evidence an interest. It is relatively easy to show that a party has a ‘legal interest’ in a property if at the time of purchasing that property, the existence and amount of their share was recorded on a TR1 form and submitted to the Land Registry. A simple inspection of Land Registry ‘official copies’ will show proprietorship (naming those with legal interest).
Alternatively, there may have been restrictions recorded at the Land Registry as the result of someone’s intended ‘beneficial interest’ or you may have to dig a bit deeper to see what was stated on a mortgage application (if it can be traced). You may be able to show that you have made contributions to the mortgage since purchase (i.e. via direct debit to the lender).
Claims with respect to beneficial ownership fall within the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA).
If you do not have legal title to the property (i.e. it is not in your name) you may be able to demonstrate a ‘constructive trust’ if there is evidence of ‘express discussions’ between parties showing that there was an ‘intended agreement, arrangement or understanding reached between them that the property is to be shared beneficially'. In these cases, the person making a claim must however also show that they have ‘significantly altered their position‘ or ‘acted to his or her detriment’ placing ‘reliance’ on that beneficial interest. A typical example might be where an elderly parent has sold their home, advanced the entire proceeds of sale and their pension pot towards the purchase of the marital home.
How do costs work in intervenor cases?
If you are a parent (or other family member) seeking return of a contribution it is important to seek legal advice with respect to the merits of your claim before lodging an intervenor application. Similarly, if you are an (ex)spouse defending a potential claim you should speak with a solicitor.
The usual costs rules in family proceedings do not apply (i.e. where the general rule is that the court will not make an order requiring one party to pay the costs of another party unless there is an issue with a party’s conduct in the case). In intervenor cases, the judge has a discretion to make an order for costs which fall to be paid by the unsuccessful party akin to the costs rules in civil claims.
By Catherine Hudson, paralegal in the family law department