Financial remedy refers to the division of assets, liabilities, and the provision of maintenance for the parties involved. One aspect that often arises in discussions regarding financial settlements is the treatment of family loans — funds provided by a family member to one spouse, either during or before the marriage. Laura Sellick-Tague looks at how these loans can complicate the financial remedy process, particularly when one party seeks to exclude them from the division of assets.  

What is a Family Loan?

A family loan is typically an informal loan agreement between a family member and one of the spouses. These loans can take the form of cash or property, and they are generally made without formal legal documentation, unlike bank loans or mortgages. The terms of repayment may also be informal or undefined. In divorce proceedings, the handling of these loans can become contentious, especially if one spouse claims the money as a gift or seeks to argue it should be repaid before any division of assets.

How Family Loans are Treated in Financial Remedy

The treatment of family loans in financial remedy proceedings is not straightforward. Family loans are generally considered as a liability (a debt) that should be accounted for when dividing assets. However, the court will consider several factors before deciding whether the loan should be repaid or deducted from the overall asset pool.

  • Loan vs. Gift: The first key issue is whether the funds were genuinely a loan or a gift. If the loan was informal and there is no clear agreement regarding repayment, the court may examine the circumstances under which the loan was made. The intention of the lender is also crucial — did they intend for it to be repaid, or was it a gift? If the court determines that it was a gift, it is unlikely to be treated as a liability in the financial remedy.
  • Repayment Ability: If the loan is determined to be a genuine debt, the court will assess whether the spouse can realistically repay it, considering the assets available for division. If repayment would create undue hardship or affect the financial stability of the parties post-divorce, this will be taken into account when determining the division of assets.
  • Impact on Asset Division: If the loan is treated as a liability, the court may reduce the asset pool for the spouse who owes the debt. Alternatively, if the loan is excluded, the loaned amount may be considered part of the marital assets to be divided. The court’s primary focus will always be on achieving a fair settlement, balancing the interests of both parties and any dependent children.

Family loans can complicate the financial remedy process. While they are typically treated as debts, the lack of formal agreements or clear repayment terms means that they may be disputed. In all cases, the court will consider the facts carefully to determine whether a loan should be repaid and how it impacts the overall division of assets.

If you are involved in a divorce where a family loan is at stake, it is advisable to seek legal guidance to ensure your interests are protected and that the financial remedy is fair. Our specialist financial remedy team are able to assist with this together.

​How we can help

If you are contemplating making or receiving a family loan, our team can also advise on various methods to assist with protecting these resources as much as possible in the event of a subsequent divorce.

Speak to Laura Sellick-Tague

Laura is a Associate Lawyer, Chartered Legal Executive at Wollens and can advise you. Contact Laura via email laura.sellick-tague@wollens.co.uk or call 01803 225161.

You can also complete an online enquiry form. One of the Wollens team will contact you as soon as they are available.