It is not uncommon upon a divorce or relationship breakdown for a dispute to arise over whether monies received from one spouse’s parents were a gift, loan or advance inheritance.
At such difficult times when parents are naturally protective and supportive of their adult children, they can often feel very strongly that the monies given were meant to solely benefit their son or daughter and not their former daughter in law or son in law.
This can lead to considerable legal fees being incurred in trying to settle the dispute, particularly if it becomes necessary for the parents to be joined into any proceedings, so as to enable a Court to make a formal determination.
How the Court treats any such arguments raised by parents will depend on the particular circumstances of those involved and the monies given, however:
If monies have been given as a deposit for a property, it is very likely that the mortgage company will have required the parents to sign a declaration of gift, confirming the monies are not repayable and they have no interest in the property.If such a declaration has been signed it is then very difficult to go behind this and suggest the monies were a loan or that the parents have an interest in the property.
If monies have been given and there is no formal loan agreement, the Court will usual treat this as a “soft loan” at best and not take it into account for settlement purposes. A soft loan is one where the Court considers the lender (i.e. the parents) will wait for the money to be repaid and not take action via the civil Courts for repayment.
If monies have been given as an advance inheritance, then if there are insufficient assets to meet needs and/or the advance inheritance has been mingled with other jointly owned assets, then the monies are likely to be shared and not simply retained by the spouse whose parents the monies came from.
For the best chance in persuading a Court on divorce that monies from parents or other family members are repayable and should be viewed in the same terms as any commercial debt, a formal loan agreement should be entered into, including terms as to repayment and interest. Ideally, there should also be evidence of repayments being made. Parents may find there are tax implications as to whether the monies are a gift or a loan and professional advice should be taken.
Depending on the circumstances, for the couple to enter into a cohabitation agreement or pre/post nuptial settlement which deals with such issues is also advisable.
If you are experiencing relationship difficulties or as a parent are concerned about your adult child and money you have given and would like further advice or to make use of our fixed fee appointment scheme then please contact one of our family law specialists Zoe Gaitskell or Benitia Knowles-Wright on 01404 548050.