What is the Bank of Mum and Dad?

Insight

What is the Bank of Mum and Dad?

The Bank of Mum and Dad refers to parents financially supporting their adult children, often to buy or improve property.

With rising living costs, many rely on this help – amounting to an estimated £17 billion annually in the UK. While well-intentioned, such support can lead to complications, particularly during relationship breakdowns, if not clearly structured or legally defined.

What is the status of the financial assistance provided?

Before providing financial assistance, one of the first considerations should always be: What is the status of the contribution? Put simply, is it a gift or a loan?

Gifts

If financial assistance is given as a gift, with no expectation of repayment, parents should be aware of the risks – especially when their child is married or cohabiting. Is the gift solely for the child, or also for their partner and any children?

All too often, in divorce cases, we encounter situations where parents have provided financial assistance to their child and their partner without clarifying whether it was intended as a gift or a loan. When the relationship breaks down, this uncertainty frequently leads to disputes, which can significantly affect how assets are divided between the separating couple.

Loans

Alternatively, is the support provided as a loan? If so, what are the terms? When does the loan become repayable? What are the repayment conditions? Is interest payable? All these questions require careful consideration, and in most cases, it is wise to have a formal loan agreement in place.

Cohabitation agreements, pre- and post-nuptial agreements

Cohabitation agreements for unmarried couples, pre-nuptial agreements for those planning to marry, and post-nuptial agreements for those already married can play a vital role in managing gifts from the Bank of Mum and Dad. These agreements are a valuable investment for any couple, helping to provide clarity and protection regarding parental financial assistance.

Before providing financial help, parents might suggest their adult children enter into the appropriate agreement based on their circumstances.

If you are considering providing financial assistance to your adult child, we strongly recommend seeking legal advice first. Likewise, if you are married or cohabiting and your parents plan to provide financial help, you should consider entering into a cohabitation, pre-nuptial, or post-nuptial agreement to clarify intentions should the relationship break down before accepting the assistance.

What is the Bank of Mum and Dad?