Would money loaned to my son be protected in divorce?

[grrnchange]

I lent my DS a lot of money to pay off his mortgage and do some home improvements. There is no formal agreement, but he has been paying it back regularly. It will take quite some years to pay it back though, and as I am older, it might not be fully paid off before my death.

He is now going to be married (quite unexpectedly), and whilst I am happy for him, I am realistic in what might happen with any marriage. If the worst happens and they divorce, will I lose this money?

Your money is not protected now. Without a formal agreement, you are relying on his cooperation for repayment. Proving a debt exists would be difficult.

Presumably he doesn’t actually have the money now? He’s spent it and paying you back from his income? So that wouldn’t be affected by marriage or divorce (legally). Whether his new wife objects to him paying you is a different matter.

The original money now sits in his asset, the house. So depending on the outcome of the marriage, length etc he may be forced to share it at some point. But he may not. The new wife may have assets, or in a short marriage the parties tend to keep what they went in with. He should be thinking about this.

Thank you for your quick replies.

No, he doesn't have the money - it was lent for a particular purpose and I just paid either him or sometimes I just paid the bill directly.

She doesn't have assets and I'm pretty sure she won't object to him paying me as it is cheaper than if he had borrowed the money on a mortgage for instance as I don't charge him interest.

I don't really want to have to involve (or pay for) a solicitor to make it a formal agreement, so I just wondered how I stood. I suppose I can manage without the money at a pinch, but I am also concerned about when I die that he is fair with his brother about any inheritance (if there is any).

If I understand correctly,

All YOU can lose at this point is him paying you back.
Continuing to pay you back is his decision, whether or not he gets divorced.
If he died then he would also stop paying you back.

You could get a lien on the house (or whatever British law calls that); a debt to be paid in case the house is ever sold, then if he had to sell the house to finalise the divorce (or if he dies & the future widow sells it), you get your money out of the proceeds.

Setting lien up legally probably costs only £1k or so.

What is the debt repayment schedule, when do you expect to be all paid back?
Most marriages last a few yrs...

So you're relying on others to do your work for you, and relying on everyone to be fair about it?

Well, it won't affect you because you'll be dead so you're the winner!

If you can be bothered, you can probably find a very simple template to write up an agreement, which protects your other son, and defines how much you've lent and the terms for paying it back. Do an annual summary of the amount outstanding, and send a copy to both your sons.

Go and see a solicitor and have a formal loan agreement written up so it's documented.

Your son should also seek legal advice about ringfencing the deposit in case of a divorce. Is his name on the deeds only, then he should consider protecting the house as its was his before marriage.

It depends what you mean by protected. Your loan is not protected. You are relying on goodwill to get it repaid. Divorce and marriage dont change this although now there's another person in the mix who may have an opinion on what is being paid and when.
If they married and divorced she would have potential clain on joint assets which would include the house. In the absence of any formal loan agreement there's nothing to say the value of the house is the value minus the loan. It will just be taken at face value.
Not wanting to go to a solicitor or have a formal loan agreement is going to affect the divorce and it won't be protected. So if for example they were divorcing and it was 50 50 split of house. And house was worth 100k but you'd loaned 50k. Without the agreement they'd just split 50k each whereas taking into account the loan it's actually 25k each.
Get a proper agreement. It's honestly not hard or expensive

I’m not sure what you mean? Why would a divorce mean your DS wouldn’t pay you back?

I am also concerned about when I die that he is fair with his brother about any inheritance (if there is any).

This is your responsibility to write up in your will, you should add these details of what he’s been loaned, how much he was paying you back so when the time comes its there officially.

Its infair imo to expect your sons to sort this out between themselves and it’s the kind of situation that can become very fraught if it’s not clearly set out in your will.

Get a bloody will written up and mention that your ds was loaned x so his inheritance amount is adjusted to reflect the remaining debt. Don't be a skinflint and see a solicitor and have this properly documented to protect your other child.

You can agree a charge be put on the house. That will protect you from losing it.

You won't lose the money as such. Your son will still owe you the same amount of money whatever happens. The marriage will not make any difference, nor will any divorce. The only danger is that he will stop paying and/or refuse to acknowledge the debt after you die. If you don't want to pay a solicitor for a formal agreement, just make sure you keep proper records showing how much you have lent him and how much he has paid off.

I have written a will (and LPOA) before this loan which left them equal shares in any inheritance. I was hoping it would be paid back before I died. I wasn't sure how to word any amendment to my will if I don't know how much will be owing (if anything) at the time of my death, but I guess a solicitor will know.

Not sure how to broach putting a charge on the house but I suppose I will have to discuss it with him. How would this affect him if he wanted to sell? I don't want to make life difficult.

Thank you.

A solicitor should be able to help you amend the will to adjust the inheritance by the amount of the outstanding loan at the time of your death.

If you can afford it, another option would be to simply give your other child the equivalent of the outstanding amount now and forgive the remaining loan.

You need him to sign a piece of paper stating he owes this amount, and he'll pay it back in installments either by a certain date or when debt is clear.

Otherwise it makes little difference whether he's married or not. He could just stop paying and there's no proof the money is owed. He could deny receiving it or say it was a gift.

Unfortunately I can't afford to do that which is why it had to be a loan - I will have to consider seeing a solicitor I guess, thank you.

I suppose I will - I have no reason to think he will renege on our verbal agreement, it is widely known among the wider family that I have lent him this money anyway, but you are right, you never know do you.

In theory, his marriage should make no difference. The money is due to you, and, like any other debt, the sum outstanding should be deducted from his assets in the event of a divorce - it's only the net assets that are divided.

However, the difficulty that may arise is the lack of evidence. In that scenario his wife's lawyer is likely to claim that it was really a gift, and that you and your son are just pretending it's a loan so as to minimise the value of his assets.

It would therefore be sensible to have a proper agreement prepared acknowledging the loan, and probably incorporating a repayment schedule. But it's probably better not to include interest, as that would be taxable in your hands.

If you wanted complete security you could take a charge over his house (assuming it's not already mortgaged) but that would obviously incur more expense.

Yeah, it's just the sensible thing to do with loans. If his attitude were to change or be negatively influenced by his wife then it's just having that security of proof. Equally it would mean it would be clear to his wife the money needs to come from him rather than her having to chip in for it.

If you lent him a large amount for the house purchase then presumably you/he needed to sign something to evidence that your contribution was a gift to show the source of the money (as part of money laundering protection) to the conveyancers.

If this is the case then legally it is a gift and you may be on dodgy ground claiming it is a loan. In actual fact legally he is paying you a gift of cash every month and this has nothing to do with the house money.

If so he can legally stop this whenever he wants and there's nothing he can do about it. His new wife would be reasonable to ask her husband to stop gifting his mother hundreds of pounds a month and if they spilt in a few years or after kids then he may struggle to afford to repay anyway and may be forced to stop paying even if he acknowledged the moral need to repay.

You can only rely on his goodwill to pay. Requesting a lien on the house or a way to formalise the loan will only sour the relationship and would require his consent. I can't see a legal justification for the lien and he would be stupid to agree to one.

The only sensible thing to do is to sort it out via your will. I'm confused that you managed to pay your child such a substantial amount of money to buy a house that you left yourself without enough to afford to rewrite your will...how/why did you do this?

There are cheap/free will writing services or ones that will take a contribution from your estate after you die instead of up front payment. This might be an easier option.

How realistic is it that the loan (or most of it) won’t be paid off before you die?

How would this protect them? Presumably the risk is the wife getting half or more of the property that OP paid for in a divorce?

I agree though OP all you have to lose is your son paying you back- maybe not being able to afford this in 10/15 years post divorce.

It would document that it was a loan & money that was still owing - more to make it clear to the other brother

Read the OP again, slowly.

It was for home improvements and to pay off the existing mortgage, not to secure a mortgage.

Well that’s useless too. You’re all getting shitty with people without having good advice to back it up