How Will the Family Court Treat my Debts in Financial Remedies Proceedings?

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Upon divorce, fair division of the financial assets can provoke dispute, leading to financial remedies proceedings in the Family Court. Unfortunately, running two separate households is often much more expensive than living together. As a result, former spouses may suffer increased financial difficulty or even accrue debts. Some obtain loans from family members. A central point of dispute in financial remedies cases is often how these ‘loans’ will be dealt with. The other party may argue that family members will not insist on these ‘loans’ being repaid, and they are in fact simply gifts. This is important because it changes not only what fair division might look like but what there is to be divided in the first place.

What are ‘hard loans’ and ‘soft loans’?

Payment of money from a third party to one spouse may be argued to be a ‘hard loan’, a ‘soft loan’, or a gift. A hard loan is a loan which must be repaid, usually within a certain timeframe. A ‘soft loan’ is a loan where there is expectation of attempt at repayment, but it is less certain and less urgent. This is common in the case of money received from family members. The circumstances of loans will vary, as will the expectation of repayment. ‘Soft loans’ must be as variable as the family members who provide them. Soft loans need not be provided by family members but are most often in practice.

‘Soft loans’ from family members must be distinguished from gifts of money from family members. In order for a transfer of money to be a gift, there must be evidence of an intention to give. Therefore, if looking to show that money received by your former spouse was a gift rather than a loan at all, it is worth considering what evidence there is of an intention to give.

What are the signs of a ‘hard loan’?

(1) it is a loan to a finance company;

(2) the terms of agreement have the feel of a commercial arrangement;

(3) there is a written agreement;

(4) there is written demand for payment or threat of legal proceedings;

(5) there has not been delay in enforcing the loan;

(6) the loan is for a larger sum.

What are the signs of a ‘soft loan’?

(1) it is to a friend or family member and they remain on good terms;

(2) the loan came about informally;

(3) there has been no written demand for payment;

(4) there has been a delay in enforcing the loan;

(5) the loan is for a lesser sum.

The distinction between a ‘hard loan’ and a ‘soft loan’ is imprecise and fluid between cases. As a result, expert advice on the specifics of your case will be crucial.

Here to Help

If you need advice on any family matter, please get in touch with Tracey Dargan, Partner and Head of Family and Divorce.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.