Grandparents’ Role in Family Finances

Financial gifts, loans and provisions can give rise to unintended results when relationships break down

As anyone who has had children knows, you never stop being a parent, so it follows that you never stop being a grandparent either. There are a number of ways in which grandparents may find themselves, willingly or unwittingly, caught up in their offspring’s family proceedings. This article looks at some of the ways this can happen and what grandparents who may find themselves in this position should look out for.

Should grandparents provide financial support?

Careful thought and expert advice should be considered when contemplating providing financial assistance to adult children. There are potential pitfalls even when everyone in the family is getting on, but unintended consequences can arise from relationship breakdown that may require court proceedings to resolve.

Where funds have been provided to either or both spouses, issues can arise as to whether it was a gift or a loan. If an outright gift is being made it is highly unlikely (in the absence of agreement) that there will be any prospect of return on a subsequent dispute.

If grandparents transfer assets into the name of one or more of their children on any basis where it might revert to them in the future, they are likely to have retained a beneficial interest in the asset. As a result there will be tax consequences to consider, as well as rights to the proceeds of any sale of the asset.

Situations to look out for and obtain legal advice upon can include:

• providing a property for members of the family to live in, or funds to help purchase a property,

• making children or grandchildren the beneficiaries of a family trust fund,

• paying school fees for grandchildren, or

• owning and running a family business together.

All these types of very common family arrangements can lead to difficult and unintended consequences. When things don’t go to plan and grandparents can find themselves becoming involved in their offspring’s financial proceedings upon divorce to resolve them.

What issues could grandparents face?

Disputes can arise as to who is the true beneficial owner of a particular asset. An asset held in the name of one party could actually be beneficially owned by someone else.

Also, financial provision made for an adult child can be considered as an ongoing resource for that child and taken into account when deciding a financial settlement upon divorce. It is even the case that funds lent by grandparents to enable an adult child to pay their legal costs are considered “soft” loans. That means there is an expectation that the loan will not be repaid, so it is not considered as a debt in the final settlement, even if the grandparents say the funds must be returned!

In financial remedy proceedings on divorce the courts have a wide discretion. Each case will turn on its own facts but there are steps that grandparents can take to protect their own or their adult child's position. These include formal loan agreements, trust arrangements and prenuptial agreements. It is always sensible to obtain legal advice before committing to any such financial arrangement.

CONTACT ELIZABETH

If you would like more information or advice relating to this article or a Family law matter, please do not hesitate to contact on 01727 798043 or 07712 520696.

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