How to avoid expensive family dramas: Sarah Coles

This isn’t the only family drama that can be horribly expensive. Wills can also cause fallings out that end up costing a fortune. Contested wills are on the rise, and if a dispute over a will ends end up going to court, they can be painfully expensive. In a case earlier this month, one man spent his entire inheritance fighting his family in court, only to end up owing them money.

Families don’t have a monopoly on falling out, these issues can hit friendships too. It’s less common for there to be a financial element, but if you are living with a friend, started a business together, or have bought a property between you, then unwinding the arrangement on difficult terms can be complicated and expensive. If you’ve lent money to a friend, it can also end badly if they don’t repay as promised.

There’s no end to the ways we can fall out with our loved ones, but there are a few common steps that can help protect you from an awful lot of the costs.

Consider putting some protections in place when you create a financial connection

For couples getting married, this can include a prenuptial agreement. These aren’t legally enforceable in the UK, but as long as you both get independent legal advice, they will be considered by a court if you get to that stage. If you’re buying a home or moving in with a friend or unmarried partner, you can consider a cohabitation agreement that lays out what will happen if your circumstances change. When it comes to an inheritance, having a will makes an enormous difference, as does having a letter of wishes where you clearly explain your reasoning for anything in the will.

Try to keep communications open

In the case of a divorce, splitting up requires people to come to agreements over all sorts of things with someone they have already decided they can’t have a relationship with, so nobody is saying this is going to be easy. You don’t have to stay friends, but consider what you can sit down and reasonably agree between you. The more you can do without lawyers, the less it will cost. Communication is also key between families facing an inheritance issue. This isn’t going to be the most enjoyable family get-together, but it can help to discuss things face-to-face.

Ask yourself some tough questions

As a dispute builds, it’s easy for both sides to get entrenched and refuse to move, so you need to consider their perspective and try to work out what’s fair for both of you. If you have a fair solution in mind, you’re much more likely to be able to come to an agreement than if you keep pushing for what you want. If, for example, a friend owes you money and can’t repay you today, don’t get stuck on that fact. Can you both agree to a reasonable repayment schedule?

Consider mediation

This can work if you need a bit more help. It brings you together in a room with a single lawyer to thrash out an agreement, which can cut the costs dramatically. This can work for divorcing couples as well as friends trying to divide property and families who have fallen out over a will.

If you need more help, get the right kind

In some cases, despite your best efforts to agree between you, you’ll need outside support. A straightforward divorce may be something you can handle alone, but if you have pensions, a property, significant savings and investments or children to consider, you may need some help.

For some questions, speaking to a lawyer is the best way to protect yourself from an expensive mistake. For other issues, a financial adviser is more help. If you need to talk to someone about the emotional upheaval, then make sure you’re using the right specialist for that too. Talking through your anger with your lawyer is expensive, and they’re not going to be able to help as much as a counsellor might.

These steps can help, but sadly there are no guarantees, and nobody is immune to the risks of an expensive falling out. When I had a significant break up involving children, I did my best to keep things amicable. I kept communications open and pushed myself to compromise. We went through mediation too – until we hit a brick wall. Finally, we went to the lawyers, who soaked up tens of thousands of pounds, and we never came to any agreement. I’m living proof that if you fall out with the wrong person, there are only limited ways to protect yourself. The art is to spot these people in advance, before you have any financial links to them. If only there was some way of Musk and Trump to have known from the start that things could end badly.

Equity release

Figures out this week revealed equity release is on the rise again. Lifetime mortgages still make up the majority of equity release deals. These allow people to borrow against their home, then the interest rolls up, to be repaid when the property is sold – along with the loan itself. However, we’re also seeing some growth in retirement interest-only mortgages, in which the interest is paid as you go along, so only the initial loan is repaid when you sell up or pass away.

They’re both options for those with plenty of property equity and shortfalls elsewhere. Lifetime mortgages can work for some people who can’t meet everyday living costs from their pension, while retirement interest-only mortgages can provide a one-off injection of cash.

However, neither of them should be entered into without fully understanding the implications. There are some hefty fees, and the interest is higher than on a standard mortgage. With a lifetime mortgage, this will all roll up and need to be repaid after you die, so the longer you borrow for, the more it will cost, and over a ten-year period, the loan can easily double.

Retirement interest-only mortgages, meanwhile, run the risk of raising your outgoings, which can mean you end up building up problems for later, once you’ve spent the money borrowed against your home. You need to be aware of exactly how much it will cost each month, and how you will afford it.