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The Matrimonial Pot - a Loan or a Gift?

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The Matrimonial Pot - a Loan or a Gift?

A common question that often arises when dealing with financial aspects of a divorce is whether money and/or assets given to a married couple (individually or together) by a third party prior to, at the outset or during the marriage is in fact a loan or a gift. 

The answer to this question is crucial as this will depend on whether such money and/or assets should be repaid to the third party or whether it should be considered part of the matrimonial pot.  This could consequently significantly change the outcome of a financial settlement following on from a divorce! 

Surprisingly the way to determine the position is generally very straight forward, in that if there was the intention for a loan to arise then it will be down to the person claiming the loan to prove that this was the intention and indeed the case. 

How can one therefore prove such a loan?  During proceedings, it may be necessary to prove that the asset in question was in fact a loan and the most secure way to prove this is by entering into a Loan Agreement with the person lending you the money at the time of exchange.  Where property is involved the best way to secure the lender’s interest would be by registering an interest on the title deeds of the property, such as a Declaration of Trust or even by way of a Legal Charge. 

A common scenario that is often encountered is where parents give or should we say “lend” money to their children to help them at the outset of the marriage.  On many occasions the intention is for such assistance to be repaid to the parent when the children are more financially secure and quite often at the time the parents approach their retirement years when the money will be beneficial and of great assistance to them.  If this intention is not however documented in a legal contract, such as a Loan Agreement, then there is a strong argument that this money/asset will be considered as a gift and not a loan.  The implications of this will then be that such an asset will be considered as a “matrimonial” asset and part of the matrimonial pot, with the ex-spouse standing to benefit from this.

Careful thought and consideration must therefore be given at the time the money/asset is exchanged.  A Loan Agreement must be watertight, preferably signed and dated before two independent witnesses and setting out clearly the terms of which the money/asset is to be repaid.  Alternatively, as stated above, such an interest should be registered against the property to ensure the position is legally enforceable and there is no room for any discrepancy.

If you need advice on the above issue or any other family related matter, please call us and one of our team will be happy to have a chat with you to see how we can help you.

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