It is very common for “loans” or “gifts” from family and friends to be looked at within Divorce Proceedings and Financial matters. discover how the law considers a loan in divorces.
How exactly do the courts deal with a loan in divorces?
Are they taken into account or looked at as a “ruse” by one party to reduce that share of the asset pot which is being divided?
A recent case has looked at the issues and how such monies would be treated.
The case saw a wife argue that money from her father in the sum of £30,000 (some 18 years previously) was a loan. The husband argued that £50,000 repaid by him to his mother should not be added back into the asset schedule as he was simply repaying a loan to her. The husband’s mother had previously given him the money as an advance on his Inheritance.
The difference between a hard and soft loan and why they matter in a divorce
Hard loans are likely to have some form of finance company involved. They will have the “feel” of a normal commercial arrangement and will be evidenced by a written agreement. There will also be a written demand for repayment, or the threat of legal action. Soft loans by way of contrast usually involve family or friends who are on good terms. It is more of an informal arrangement with no written demand for repayment and there has been delay in enforcing or requesting repayment.
Hard loans are part of the assets and debt position when the courts are looking to divide a pot. Soft loans are very much at the discretion of the court when considering a divorce.
Similarly, courts are often asked to look at transactions and make a decision as to whether it is a gift or a loan. Gifts have to be evidenced as gifts and there has to be evidence of an intention that it is a gift. If not, the court is more likely than not to say it is a loan which in theory can be enforced. The courts however still then have to look at whether it is a hard versus a soft loan as described.
This case saw the Judge decide that both transactions were “soft”. The wife was unlikely to repay her father so therefore it was not included as a debt for her. The husband was found to have repaid his mother simply to reduce his side of the asset calculations.
For advice with regards to your position or the impact on loans and gifts on your divorce – no matter which side of the fence you are on – then please contact Helen Davies, Head of Family at helen.davies@dtmlegal.com
Helen has vast experience of Finances and Divorce. DTM Legal offer a free 30-minute consultation on family law matters so there will be no charge on your initial consultation with Helen.
