When is a loan not a loan?

It is very common for parents to give financial assistance to their adult, married children. It is also very common for parents to regret that assistance and seek repayment if the marriage breaks down. The court may not always agree that this is fair or appropriate.

It is important to consider whether any financial assistance is a gift or a loan. A gift will not be repayable, even if a marriage breaks down. A loan from a family member can be defined as either hard or soft.  The most important consideration is whether the sums will genuinely have to be repaid, if so, there may be a hard loan, if not, a soft loan.

A soft loan is unlikely to be considered repayable and, even if already repaid, may be added back into the matrimonial pot. The family court recently ordered that £150,000 repaid by a husband to his mother, added back into the matrimonial pot, and shared virtually equally between the separated spouses. The mother viewed the sums as an advance inheritance and had no intention of enforcing repayment.

It is vital, to consider the true nature of financial assistance, the terms of repayment and the willingness to enforce those terms. Documenting these circumstances, at the time the financial assistance is given, will assist greatly if there is a later dispute. However, simply labelling assistance a loan is not enough, there must be a genuine intention to enforce repayment if necessary.

If you have given, or are thinking of giving financial assistance and would like advice, please call 0121 451 166, or complete our short contact us form and a member of the team will get in touch.