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Financial Remedy Proceedings prospective of the parents and how to “protect” their loans/gifts.
An issue that can arise within financial remedy proceedings is how to deal with third party support, often in the form of a parent who has financially contributed towards the purchase of the family home. The starting point is to establish if the money was a loan or a gift as this will decide if the money falls within the matrimonial pot that is to be divided between the spouses.
It is not surprising that the views between the spouses will differ on this point. The spouse whose parents provided the support will no doubt argue that it’s a loan to be repaid and to fall outside the matrimonial pot, whilst the other spouse will likely argue that it was a gift, and so fall within the matrimonial pot.
An important factor in assessing if the money provided was a loan is whether there was a clear obligation for a repayment, and if the loan is considered a soft loan or hard loan. Loans that are considered soft loans will be considered part of the matrimonial assets.
A hard loan will often have a clear written agreement in place, setting out the terms of the loan, when and how it is due to be repaid, interest owed on the loan etc. In most cases, a written agreement between parent and child is very rarely made (and often the transaction would have taken place many years prior) and so the Courts will look at factors such as if any requests for payment have been made and if any actual repayments have been made and is it likely that a threat of litigation could happen in the event of no repayment.
If these factors can be evidenced, then it can be argued that the loan is a hard loan and therefore a debt to be repaid.
Soft loans are generally considered informal in the sense that there is no agreement in place and no belief or understanding that the money will ever need to be repaid. The consequence of the soft loan (despite not being considered a gift) is that it will fall within the matrimonial pot.
Parents who find themselves in this situation may well wish to seek to protect their money. Ideally, a contemporaneous clear agreement between the parent and the couple clearly stating the nature of the loan and the terms of the loan, would serve as evidence of the parent’s intentions.
Without evidence of the monies being provided as a hard loan, if either spouse issues financial remedy proceedings at court, the parent/s may find themselves having to be added to the proceedings as intervenors in order to get their money back. Having an intervenor in proceedings will inevitably delay the conclusion of financial matters and lead to an increase in costs for all parties. As with any litigation, there is also the risk of a costs orders being made against either spouse or the intervenor, so it is important to weigh up the benefits and merits of intervening and consider whether the overall costs of an application to intervene will be proportionate to the value of the claim.
In a case where the matrimonial pot is already modest, the additional costs of joining an intervenor and the inherent risks of making an application to intervene, might mean it is best not to unless there is clear evidence of the existence of a loan.
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