Helping Your Child to Buy a Home Upon Marriage

Helping Your Child to Buy a Home Upon Marriage

Helping Your Child to Buy a Home Upon Marriage 1200 640 Alfred Ip

Hong Kong has topped the tables over the last decade for being one of the most expensive cities in the world, with the priciest real estate.  The point of entry to home ownership is so high that it is out of reach of many young first-time buyers, even those in financial services and other well-paying professional jobs.

Enter the bank of mum and dad.  It is increasingly common, even typical, for parents to provide financial assistance to help their children buy their home.  Assistance can be in the form of a down-payment to fully purchasing and ‘gifting’ a property.  First home ownership and marriage often go hand-in-hand and the down payment or gift of the property can take the form of a wedding gift.

Parents becoming part of the divorce proceedings

In the past, parents often preferred to registering themselves as the owners of their child’s property.  However, due to preferential stamp duty rates for first time buyers, properties are now usually registered in the name of the child.

In addition to high prices, Hong Kong also has a very high (and growing) divorce rate.

The assets held in the names of a divorcing couple, in particular the matrimonial home, will usually form part of the matrimonial assets (sometimes called the matrimonial pool) over which spousal claims will be made.  At this point in time, a parents’ contribution to the acquisition of the matrimonial home may become a serious and potentially highly contentious issue.

It is not uncommon for parents to ‘intervene’ in divorce proceedings, asserting beneficial ownership of the former matrimonial home. If a parent can establish beneficial ownership, it would remove the home from the matrimonial pot, denying the other spouse from being able to make financial claims for the same. We have been party to divorce proceedings which grew into multi-party proceedings, involving not only the husband and wife, but also their parents joining as third parties.  In cases like this, with all parties ‘lawyered up’ the small family court’s rooms quickly become overcrowded and legal costs are incurred at a rapid rate.

Such proceedings typically involve the parents arguing that the down-payment or property was a loan or subject to a Trust arrangement.  The spouse would counter-argue that it was a gift (especially when the payment or property is closely related to the marriage). Parents often have an uphill struggle in such cases, and assertions of a loan or Trust arrangement are not easily accepted by the Court.

Deciding whether there is a third-party interest

When we face a third-party claim to the matrimonial assets, and specifically, a situation where a parent has made a contribution to the matrimonial home, the immediate question is whether such contribution should or should not form part of the matrimonial pool that is to be split between the divorcing spouses.

In seeking to answer this question, the Court will look at the all the circumstances of the arrangement, including but not limited to:

  1. relationship between the alleged borrower and alleged lender;
  2. any evidence to support the alleged financial arrangement with the third party – for example, if the contribution was in the form of a loan, whether there is any evidence to show that there is an obligation to repay the loan;
  3. purported terms of the financial arrangement; and
  4. purported compliance and enforcement of the said financial arrangement, and the likelihood of the third-party having waived their rights under the financial arrangement.

In the context of parents providing financial assistance to a child for the acquisition of the matrimonial home, the arrangement is usually a casual one, with little or no documentary record.  Even if there is a loan agreement, the repayment terms are usually not specified or are stated to be “upon demand” and no enforcement action would be taken if there was a default.  If there is an alleged Trust, there may not be a formal Trust Deed or a Declaration of Trust.

Solutions
  • Prenuptial Agreements

Pre-nuptial agreements (“pre-nups”) are increasingly popular amongst couples looking to get married. Where parents have or will make a significant contribution to the couples’ matrimonial assets, this will be recorded in the pre-nup in order to protect the family wealth.

The legal effects of pre-nups has been discussed at length in our other articles and podcasts.  However, the long and short answer is that pre-nups are highly persuasive, but not necessarily a water-tight, fool proof solution.

  • Financial Agreements

If you are a parent looking to financially contribute to your child’s marital assets, it is very important that your child and their spouses be adequately informed of the full details of the financial arrangement that is being proposed. The arrangement should also be properly documented in writing.

If the financial contribution is property (or to be used to buy property) that will be legally and beneficially vested in your child’s name, a properly drafted loan agreement between the parent and child is advisable.  Such a document should ideally be prepared and witnessed by a lawyer.

 

If you require assistance in respect of financial arrangements on divorce or have any queries regarding the treatment of loans and trusts within financial remedy proceedings, please do not hesitate to contact our Family team.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

Alfred Ip

Alfred assists high net-worth individuals (HNWIs) in handling their wealth-related issues, such as contentious and non-contentious trust and probate, mental capacity, family office, amongst other wealth management matters. He is also a leading Dispute Resolution lawyer with over 20 years of experience in Hong Kong. Moreover, Alfred helps clients with issues regarding Family Law.

All articles by : Alfred Ip
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