Money from parents and family

Is money from my parents treated as a gift or a loan?

The court will look at the evidence of what was intended when the money was given. If it finds the money was a loan, it will then consider whether it is a "hard" or a "soft" loan. In P v Q [2022], the court set out factors pointing each way.

A hard loan is a genuine debt that the lender is likely to enforce. Signs include a written agreement, interest, a repayment schedule, and a history of the lender asking for repayment. A hard loan is usually deducted from the assets before they are divided.

A soft loan is an informal arrangement with a family member who is unlikely to demand repayment or cause hardship. In practice, it is often treated much like a gift, and the court may disregard it altogether. Even where a loan has been repaid, it will not automatically be treated as a hard loan.

What if my parents helped us buy the family home?

This is one of the most common situations. Where parents contributed towards the deposit on a home bought in joint names, the contribution is often treated as a gift to the couple, and its value may be shared along with the rest of the home. Where the money was clearly given to one spouse alone, or the marriage is short, the court may be more willing to recognise that spouse's family contribution when dividing the proceeds. In longer marriages, and where needs are tight, the source of the money tends to carry less weight.

Can my parents claim their money back?

If parents believe they own part of an asset, for example a share in the family home, they may be able to join the financial proceedings as an "intervenor" so the court can decide their claim at the same time. This can be expensive, and the usual family costs rules do not apply to intervenors, so the losing party may be ordered to pay the other's legal costs. Where parents simply made a loan, they may instead need to pursue repayment separately through the civil courts.

If your family has helped you financially, click below to speak to one of our family solicitors in confidence.

Will the court take into account future help from my family?

The court cannot make orders against family members who are not part of the marriage, and it will not assume that wealthy relatives will step in. However, in Thomas v Thomas [1995], the Court of Appeal accepted that where a family has consistently supported a spouse in the past, and is likely to continue, the court may take that into account. It may frame its order in a way that gives "judicious encouragement" to the family to help, though it must not put improper pressure on them.

How can families protect money they give or lend?

The best protection is to document the arrangement properly at the time the money is advanced. Depending on what is intended, this might include:

• a written loan agreement setting out repayment terms, and ideally a charge registered against the property;
• a declaration of trust recording the family member's share in a property; or
• a prenuptial or postnuptial agreement recording that the money is to be treated as one spouse's separate property.

Documents prepared after the relationship has broken down carry much less weight, so it is important to act early.