Tenants in common and inheritance divorce settlements?

becster0204

This may seem an unusual query. My parents have just celebrated 50yrs of marriage :T Recently my Mum has been very ill, and my father is elderly this resulted in them changing their home ownership status to "tenants in common" to increase the Inheritance tax threshold. This may sound callous, but it has come to light via my mother, that if my husband and I were to divorce - definately not on the cards, but you never know, that he will be eligible for part of this inheritance. Also that the value of the house would be considered in any settlements. My Mum would like to know if is there any way to protect the money and keep it in the family?

hobo28

I'm no solicitor but I thought he would only be eligible for half upon their death. In other words, whilst your parents are alive, there is no inheritance and therefore you cannot split an asset you don't have yet.

Am I getting the wrong end of the stick? Or are you asking how can you protect the inheritance should your parents die and then you and your husband divorce?

System

I'll give you a little of our background before telling you what we were told just today by a financial advisor. This financial advisor was totally independent - a perk of my husbands job and not trying to sell us anything.

My husband and I are both 46 with 2 girls 21 and 18 and have been pondering the IHT problem for a while and until today we were thinking about setting up a trust in the girls name for when the first one of us dies so that effectively they would jointly own half the house/asset and the remaining parent would own the other.

However our financial advisor firstly told us that the solicitors fees could be in the region of £2500 and secondly if one of us should die and their half of our joint assets are then put in trust in the girls names then should they be married and then decide to divorce the ex-partner would have a right to a claim on their asset.

The way it was explained to us was that when 1 partner dies and their half is put in trust in their childrens names then effectively whilst the children technically own those assets they lend that half back to the remaining partner until they die. At that time when the Inland Revenue come calling the children say "hold on a minute half of those assets are ours and we want them back" at which point the IR only look at the other half of the estate when trying to see if IHT is due.

We were advised not to go that route but rather to take out a second death policy which would pay out enough money to cover the inheritance tax bill when the second one of us dies. You pick the premium according to the amount of IHT you might be liable for. If IHT thresholds increase significantly so that no IHT is due then the girls would just get an extra lump sum.

becster0204

hobo28 - when speaking to my father he explained that apparently because they have TIC ownership effectively any assets even whilst they are alive are counted within any settlement. So effectively this indicates that it doesn't matter if they are dead or alive, although I could quite easily have got the wrong end of the stick. The real question is if I can protect the inheritance. All very complicated

becster0204

Thank-you Pam17 unfortunately because of age and illnesses death policy would be very expensive + they have already done TIC.

margaretclare

becster0204 wrote:

hobo28 - when speaking to my father he explained that apparently because they have TIC ownership effectively any assets even whilst they are alive are counted within any settlement. So effectively this indicates that it doesn't matter if they are dead or alive, although I could quite easily have got the wrong end of the stick. The real question is if I can protect the inheritance. All very complicated.

I'm not sure I've understood the question, but here goes from what I think you're asking:

If you and your husband divorce then all of your assets get put on to the table and a 'consent order' is drawn up as to who gets what. Yours and your husband's assets - no one else's. The house, the car, the savings, the wine cellar, the racehorses, the diamond necklaces he bought you, the Old Masters on the walls, the antique furniture....Get the picture? It's a 'pot' of assets which is divvied up to make a fair settlement.

As Bossyboots often says, 50/50 is what is assumed, but it's not always 50/50 - it depends on a number of factors including length of marriage, children/no children etc.

However, what doesn't form part of those assets to be divvied up (and can't when you think about it) are any assets owned by someone else i.e. your parents in this case. Your parents' assets remain theirs until they pop their clogs. An 'inheritance' doesn't exist until someone dies - it's just 'in the air'. Your parents may use all their assets during their lifetime, anything can happen. No one has a 'right' to an inheritance. And what, or who, are you trying to protect the inheritance from?

Margaret

kelloggs36

But when 1 dies, their half WILL become the property of those inheriting it, then if she and her partner divorce, that half will be part of her assets and so the other parent still living in the property is technically at risk as the partner could be forced to sell the house in order to release their share and the other parent will be homeless with 50% share money but that 50% may not be enough to buy another property.

margaretclare

kelloggs36 wrote:

But when 1 dies, their half WILL become the property of those inheriting it, then if she and her partner divorce, that half will be part of her assets and so the other parent still living in the property is technically at risk as the partner could be forced to sell the house in order to release their share and the other parent will be homeless with 50% share money but that 50% may not be enough to buy another property.

I can't see how any judge, in making a consent order, would make a widow/widower homeless. There's no justice in this.

And how can you inherit half a house?

Bossyboots is the expert on this kind of thing, although I must admit I haven't heard this 'what if' kind of question asked before. The OP did say initially that 'divorce was not on the cards', so what's the point speculating about what might never happen?

Margaret

Janepig

When my grandmother died a number of years ago, her house was left (via my grandfather's will many years prior to that) to my mum and auntie. Before the house was sold, my mother passed away, so it was assumed by all that her share had therefore passed to my father. However, it was only when my dad and auntie went to sign the documents to sell the house that they found that my mum and auntie had been "tenants in common" and as such my mum's share had passed to my auntie. Luckily for my dad, she was horrified and signed what had always assumed to be my dad's half over to him.

As far as my other grandmother's house goes, it was my great-grandmother's house, where she lived with my grandmother. When she died it passed to my grandmother and her brother. Then when her brother died his share passed to his daughter. It was only again by luck and kindness that they didn't insist on selling the house and waited until my grandmother died to get their share.

Jxx

pooranddesperate

If one of the parents die and their assets pass to their children, and then one of these children later divorce the inherited assets will become part of the 'pot' which may be divided between the parties on the divorce.

How exactly the courts will deal with it will depend on the circumstances of the case. If, for example the parties did not divorce for 20 years or so after the inheritance, it is likely that it will be included in the pot, along with all the other assets either party has brought to the marriage.

If, on the other hand, the parties divorced a year after the inheritance, and there are sufficient other assets to adequately meet the needs of both parties then the court may be more inclined to 'ring fence' the inherited asset and not include it for division in the same way.

There is no easy answer to protect inherited assets - you could consider setting up a trust for the benefit of you and your children but this can be expensive to do, and the tax consequences can be severe. you would have to take specialist advice.