Loan or a gift in a divorce 

When getting divorced, sorting out the finances isn’t always straight forward and sometimes what may have been ‘gifted’ becomes a ‘loan’, which is expected to be repaid from the marital pot. 

The law treats loans and gifts differently, and it is an issue which increasingly complicates matters and sadly turns family members against each other. 

Many parents and grandparents give money to their children to help them get onto the housing ladder, so recording whether this is a gift, or a loan is important. Otherwise, it may be shared with the former spouse which might not have been the intention of the parents or grandparents. 

If it is a loan, then it will need to be repaid or taken into account when dividing assets during a divorce. If this is disputed and an agreement can’t be reached, then the court will need to decide, and they will look at all the evidence. It is therefore important to document that it is indeed a loan and the terms for when it should be repaid, which everyone agrees to and signs plus it should be witnessed. 

Many families have less formal arrangements in place, so if there are emails or text messages, thank you notes or bank statements which show it was being repaid then this can all be used as evidence. 

Where the money was gifted then it will be treated along with all the other marital assets. Assets are divided based on the needs of each individual, considering factors such as any children from the marriage and their ongoing financial needs. 

Gifts can also include other valuable, non-monetary items. Personal gifts to an individual which may include jewellery, watches, vehicles or antiques will stay in the ownership of the person they were gifted to, unless they were given as joint gifts – such as engagement or wedding presents. In this case they will be treated as matrimonial assets. 

It is always best to take legal advice before making a substantial or receiving a financial gift or loan to avoid uncertainty and to help prevent it from being disputed as part of the separation. 

Sunita Chauhan can be contacted at s.chauhan@gullands.com