![]() They are provided by a commercial lender such as a bank or loan provider.The courts tend to view soft loans as never to be repaid in the future and so won’t always take them into account when deciding a settlement. Has a reasonable probability of having the repayment of the loan waived.There has been a delay in enforcing the obligation.No written demand for payment has been made despite the due date having passed.They are a more informal arrangement that do not need to be in writing.The lender is unlikely to want the borrower to suffer hardship.Provided for by a friend or family member with whom the borrower is on good terms.The key issue the court asks itself is “what is the likelihood that the obligation to repay will be enforced?”Ĭase law does not provide any conclusive test to determine whether or not a loan is 'hard' or 'soft' as it is always fact–specific, but HHJ Hess’s judgment assists by outlining a non-exhaustive list of factors to consider when determining whether there is any real repayment obligation, some of which are set out below: Soft loans On divorce, it isn’t uncommon for one spouse to suggest that there was an expectation that a gift made by their parent to assist with the purchase of the family home made many years prior would be repaid at some point in the future, whereas it will always suit one party to say the opposite, that it was a gift never to be repaid and therefore there shouldn’t be any adding back in favour of the other spouse. The next question is whether it would be considered a ‘soft’ or ‘hard’ loan. If you cannot prove that the payment is a gift, the payment is considered to be a loan. If there is clear evidence of a gift, any prospect of success is limited in any event. It might be possible to run a contribution/non matrimonial property argument - but if all of the equity is required to meet ‘needs’ (usually to ensure both parties are suitably re-housed) it is unlikely to succeed.Īlso be aware that the family home is often treated differently from other assets of the marriage, often with the starting position being a 50/50 split, which is departed from only on needs. If Graham doesn’t protect this money in any way (see further below in this article), then when Sally and Richard divorce, Sally, or rather Sally’s father, won’t be reimbursed with the £50,000 - it has effectively been assumed to form part of the equity available for division between the parties. ![]() Graham decides to gift £50,000 to his daughter, Sally, to apply against the mortgage on the family home so that it reduces the monthly repayments that she and her husband, Richard, are paying as Richard recently lost his job. Gifts will form part of the matrimonial pot available for division between the parties. ![]() There shouldn’t be any strings attached to the payment of the money and no expectation for it to be repaid in the future. In P v Q (Financial Remedies) EWFC B9 HHJ Hess confirmed that for a payment to be considered a gift, there must be evidence of an intention to give. The short answer is that gifts and soft and hard loans are treated differently by the courts on divorce or dissolution, so if you’re considering gifting some money to a family member, you’d be wise to read this article first. Was the money a gift never to be repaid? Or was it a loan? Is it a soft or hard loan? You might be wondering why it matters. Gifting money can often be efficient inheritance tax planning for the payor, but where the payee is getting divorced, the status of the funds is often a contentious issue that family lawyers are left trying to resolve. ![]() It isn’t always clear whether it was a gift or loan to one party or to the couple jointly. It could be for any number of reasons for example, to enable them to purchase a home, to fund a wedding, pay off debts, assist with a business start-up or fund legal fees/living expenses. With an expensive property market and the current cost of living crisis, it is increasingly common for parents to gift or lend their adult children money.
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