Intervener Claims on Divorce: When parents are involved with buying the first home

In this blog, FLiP Associate Rory Collett discusses intervener claims on divorce, particularly in circumstances where a couple have had the financial help from parents in purchasing their first martial home. 

With house prices rising for the fourth month in a row, the cost-of-living crisis continuing to hit household budgets, and mortgage products fluctuating almost daily, it is unsurprising that younger married couples are relying on their family for financial support when buying their first home. The Bank of Mum and Dad accounts for approximately 20% of all financial transactions in residential property purchases, and nearly 50% of all first-time buyer deposits.

However, problems can arise if the couple subsequently separate and one of them disputes the intention behind the money provided by a parent for the original house purchase. Specifically, when couples are in the process of unravelling their finances during divorce proceedings, the situation can perhaps become protracted and complicated when one of the separating couple’s parents allege they have an interest in the ownership of the matrimonial family home and the money contributed was only a loan (when the other alleges it was a gift), and they want to ringfence that contribution.

If the separating couple cannot agree what the outcome should be, then the parents will need to be joined to the financial remedy (divorce) proceedings as an ‘intervener’ so that the court can adjudicate on the nature and extent of that interest. The Matrimonial Causes Act 1973 states that where a third-party (e.g. parents who have lent money) has a beneficial interest in any property or in the proceeds of sale of a property, the court will give the opportunity to that party to make representations to the court. This can happen at any stage in the proceedings (although the court can give a deadline for it to happen, and it must be at the earliest opportunity) and only if the court deems it ‘desirable’ to add the party to resolve the dispute. As a result, the court has the power to determine not only the rights and interests of separating spouses in a property, but also the right and interest held by third party parents.

In the first instance, the court must determine the extent of any third-party interest in the property before moving forward with the wider financial remedy case. Put simply, a Judge cannot reasonably make decisions regarding the division of the matrimonial pot, until the size of the pot has been determined. This will mean that the parents’ issue will be resolved as a ‘preliminary issue’ before the court establishes the final matrimonial split. This will involve separate witness statements from the parties and the case will be fully pleaded by points of claim and points of defence. This, of course, can be an expensive process, especially if parents are supporting their child financially through the financial remedy proceedings as well. In fact, in some instances, the costs of joining in a third party may outweigh the actual amounts in dispute. The ordinary rule that applies in family proceedings that each party bears their own costs, does not apply for an intervener claim. Instead, it is likely that the successful parties to the intervener dispute will have a cost order made in their favour (although this is unlikely to cover all the costs incurred), which could substantially reduce the overall matrimonial pot.

A sensible way to resolve these issues could either be at mediation or at a private FDR Hearing. At the latter, on a without prejudice basis, a private FDR judge would provide an indication of the likely outcome if the case was to proceed as a preliminary issue at a Final Hearing. Even if the parties continued to Final Hearing (or the intervener joined later over the course of the case), a cost-effective approach could be to have the preliminary issue hearing earlier, and deal with the intervener issues ahead of time.

It is worth couples carefully considering entering into a pre-nuptial agreement before their marriage. A pre-nuptial agreement can be a useful tool in steering a Judge on the intention of the parties at the point when the money was originally gifted.

Rory’s practice involves advising clients on all aspects of private family law including financial and children matters and pre and post nuptial agreements. Having qualified at a City law firm as a commercial litigator, Rory has invaluable experience of corporate structures and business arrangements across numerous sectors enabling him to provide a breadth of experience to his family law clients.