Saying “No” To The Bank Of Mum And Dad: Prenups And Parental Pressure
Published on 18 January, 2024 | Melanie Hadwin
It is perhaps only natural for parents to want the best for their children.
Even when those children become adults, it is not a surprise to find that they turn to their mothers or fathers for advice and assistance.
More than acting as unpaid childminders or looking after pets while sons and daughters are on holiday, that help is becoming financial.
In part, it is has been driven by the continued rise in property prices in the UK.
Only last month, for instance the Office for National Statistics (ONS) published data showing that the average cost of a home across England, Wales and Scotland now stands at £288,00 (https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/october2023).
With increases as well in the cost of living, it means that being able to take a first step on the property ladder is beyond the means of many individuals – at least, without family being able to chip in.
Last year, research by a leading financial services group concluded that total lending by the so-called ‘Bank of Mum and Dad’ would amount to more than £8 billion during 2023 (https://group.legalandgeneral.com/media/4vvjwjhy/bank-of-family-launch-release_final.pdf ).
It should be said that such monies – as either loans or gifts – sometimes come with strings attached.
As I’ve been telling Jonathan Ames of The Times
(https://www.thetimes.co.uk/article/1147b6f6-9bcf-4651-b8e4-1de15908515c?shareToken=7d64d0a14838005b793e824ed84f283e), I have been involved in a number of cases of parents who have either given or intend to give cash and wish to protect those sums from potentially being divided upon a child’s divorce by insisting that a pre-nuptial or post-nuptial agreement is put in place.
I would go so far as to say, in fact, that a considerable proportion of the pre-nups with which I deal are initiative by parents with just these sorts of conditions.
They don’t solely go to the gifting of money to help buy a house but can be part of a parent’s estate planning and set out the terms of a prospective inheritance.
Some parents are quite adamant that bequests or gifts will only be made once a pre-nup or a post-nuptial agreement is drawn up.
They know that divorce is relatively common. Yet more data published by the ONS shows that 41 per cent of all marriages have ended that way within 25 years of couples tying the knot (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2021) .
They also appreciate that nuptial agreements represent a sensible element of contemporary financial planning.
That has particularly been the case since a landmark Supreme Court judgement in October 2020 (https://www.supremecourt.uk/cases/uksc-2009-0031.html).
I should point out that even though that ruling underlined that pre-nups should be accorded “decisive weight”, they still do not have the full weight of law, although it appears to be creeping ever closer.
In February 2014 and following a comprehensive consultation process, the Law Commission argued that “qualifying nuptial agreements” (pre- and post-nups) should become “enforceable contracts” (https://lawcom.gov.uk/project/matrimonial-property-needs-and-agreements/).
However, the Coalition government of the day chose not to advance that recommendation in the form of legislation.
It is an omission which the Commission finds itself confronted by once again as it prepares a ‘scoping report’ on possible changes to the rules governing the financial aspects of divorce, a project regarded by ministers as the second phase of divorce law reform after the introduction of ‘no-fault’ splits in April 2022 (https://lawcom.gov.uk/project/financial-remedies-on-divorce/).
That work and parental efforts to insulate the transfer of family wealth has implications right across society.
In addition to the effect of higher property prices, recent news reports have suggested that the next generation of billionaires are more likely to derive their fortunes from inheritance than entrepreneurship (https://www.theguardian.com/news/2023/nov/30/next-generation-billionaires-collect-more-wealth-from-inheritance-than-work-ubs).
Even so, there are children who do not take kindly to their parents’ demands that they have a pre-nup or post-nup before being given cash or other assets.
I have been involved in a number of cases in which individuals reject such requests because they view them as attempts to control their relationships despite the risk of losing out on substantial sums.