“My family have offered to help me fund my divorce, will this impact our financial agreement?”

18th November ‘20

 

Before we consider how the Family Court treats money passed from family members, we must first accept that the court has wide discretion when considering the division of matrimonial assets.

There are very few ‘hard-and-fast’ rules when it comes to how a judge will consider it fair and reasonable to split assets up following the breakdown of a marriage, and what happens in one case will not happen in another.

When looking at monies advanced from family, for the purpose of this article, we are going to look at circumstances only when money has been provided on the breakdown of the marriage, or afterwards, for the purpose of legal fees.  Where there have been multiple payments during a marriage, there are other complex factors in place that need to be considered.

So the first way money that can be passed, is an gift.  Like all gifts, once made, the legal title passes and that money is available to you to spend as you wish.  The court may query whether you will receive more such gifts in the future and may think it appropriate to consider an overall settlement relying on the premise that you will continue to receive payments in the future, and will look at prior dealings between you and the gift-giver, their financial position, and all other relevant circumstances. I the court does make findings that money may pass in the future, this can negatively impact on your financial settlement.

The second way money is commonly passed, is by way of a loan.  This can be more complicated, as the court will upon becoming aware of a loan, look to determine whether the loan is ‘hard’ or ‘soft’, and the determination will likely have ramifications for the party in debt.  A hard loan, is in simple terms, is a debt to which legal action will likely follow if repayments are not made, so for example, a mortgage or credit card. A soft loan by contrast, is where money has been lent and it is unlikely that the lender will not take action, which most commonly takes place between friends and family.

Typically, the court will determine that soft loans do not need to be repaid, and therefore should not be accounted for in any settlement, which is particularly tricky where the family member does indeed want their money back and they have lent the money perhaps on generous repayment terms, with no or low interest and quickly.  More often than not, save for a bank statement, there is no evidence of money changing hands, and whilst that statement is a record of the money changing hands, it does not evidence why the money was paid, and the court will look sceptically upon large transactions where there is no paperwork.  Hard loans however are typically accounted for, providing they have not been taken out for nefarious or underhand purposes.

So what should you do when you need or want a hard loan from a family member?

Well, the first point is to make the loan contractual – a proper document, preferably a Deed, signed by both parties prior to the loan being paid will help the court in making a determination that the loan is hard, particularly where the terms are clearly stated regarding interest, as well as repayments, in both terms of quantum and duration.  If the loan has been taken out and is not a soft loan in disguise, and if repayments are supposed to start from a certain date, then one would expect payments to appear in bank statements on a weekly or monthly basis.  If repayments are not made, this will indicate to the court that the debt does not need to be repaid.

So what is right for my case? 

Well, that is a discussion that needs to take place between not only you and a borrower, but also you and your legal representative, to see what method works for you.

If you require support or guidance on the issues highlighted in this post, or generally on divorce and the financial issues faced, do not hesitate to contact bc@calibrate-law.com. Ben Castle is a Senior Associate at Calibrate Law.

This post is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice.

 

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