How are loans from family members dealt with in divorce proceedings?
A recent case of P v Q highlighted the difficulties a Court has when determining if a liability within financial remedy proceedings, is a ‘soft’ or a ‘hard’ loan.
It is very common for either party or both, to receive financial assistance from family members throughout the marriage, whether to help with the deposit, house improvements, pay off other debt, or for other reasons.
When a couple come to divorce, the liabilities can be considered, together with all the assets. If a loan is with a bank or building society or there is a legal contract that exists with a firm who provided funds, then that is generally regarded as a ‘hard’ loan in that if you do not pay them, they are likely to enforce the contract. That debt will be taken into account when determining the outcome.
It is less clear with loans from family members, or friends. The other party will frequently argue that it was not a loan, it was a gift and will never be re paid so should be ignored. Even if there is documentary evidence, of an agreement drafted between the parties, if the Judge considers it unlikely that it would ever be enforced, it is usually regarded as a ‘soft’ loan and could be disregarded. It would of course, depend on the factors of the case, such as the amount involved and any terms agreed, or adhered to up to this date. (For example, if loan repayments had been made regularly).
If you are loaning money to married family members to assist them, always have in mind the fact that the couple could separate and the debt due to you, may not be considered, which could result in there being insufficient funds for the party to repay you.
Always take advice if you are unsure as to your own position.
Should you wish to discuss this further, please do not hesitate to contact our specialist family Solicitors on 01229 580956. We have offices across Lancaster, Barrow in Furness, Ulverston, Grange over Sands and Windermere. Face to face, Microsoft Teams or telephone appointments can be arranged at your convenience.
