Tamasin Perkins writes for IFA Magazine on risks arising from the intersection of family wealth and commercial lending
min readDeutsche Bank Luxembourg recently applied to the English High Court to pursue Lady Reyna Barclay for nearly £19 million - debts said to have been incurred by her son, although the bank alleges that she acted as a guarantor.
The case raises questions around multi-generational financial planning:
- When should parents guarantee their children’s borrowing?
- How should such arrangements be documented?
- And what are the risks when family wealth and commercial lending intersect?
Individuals are not automatically responsible for the debts of their relatives, however this default position can be fundamentally altered through a guarantee. The question turns, then, to whether an assurance or promise given constitutes a legally binding guarantee.
This is not the only way in which financial arrangements between parents and children can lead to difficulties. For example, lenders can pursue joint account owners for debts incurred by the other party if there is a relationship breakdown or tricky situations can arise where parents own property with their children/contribute financially to their children’s home.
With a widening wealth gap between generations, cases such as these are likely to become more frequent as children increasingly rely on their parents for help - or where family living and financing is intertwined.
Tamasin Perkins, Partner in our Private Wealth Disputes team, writes for IFA Magazine.
The Barclay case underscores that where family and finances are mixed, good intentions and close relationships can lead to financial risk. Families should treat any request to support a relative’s borrowing or any joint property endeavour with the same diligence they would apply to a commercial transaction.
Such measures help safeguard family wealth from being eroded by one member’s financial difficulties and may reduce the scope for future dispute.
Read the full article in IFA Magazine here.
