Borrowing from the 'Bank of Mum and Dad' and your divorce settlement

Due to the coronavirus pandemic a lot of people are struggling financially. This is likely to be a result of their business having to stop trading or they, like many others, have been placed on furlough. As a result of this there has been an upsurge in borrowing money from the ‘Bank of Mum and Dad’ to see people through this financially challenging time.

It is important, if you are going through a divorce (or may be about to start the process) that you clarify the terms on which this money is provided.  Borrowing money usually means that there is an expectation that the monies will be repaid. However, loans between family members are often considered ‘soft’ with flexible and often not enforced repayment.   However, if you are divorcing you may want this loan to be given a status similar to a bank loan for example, so that it is factored into your financial settlement.  It is highly likely that you will want the court to consider the money from your parents as a debt rather than a gift.  

How can I ensure that the money from my parents is treated as a loan and is therefore recognised as repayable? Below I have listed some easy steps that you can take to try and ensure that you protect your parents’ money:

• Make sure you are clear with all parties involved, especially your spouse, that it is a loan rather than a gift
• Put something in writing, this does not have to be a contract or formal agreement, it can simply be an email between all parties clearly stating that the payment is a loan. You should set out terms to include interest, instalment dates and what happens if you default
• Always call it a loan and clearly label it as such e.g. when naming the reference for the bank transfer

If you are experiencing a breakdown in your marriage, and as a result are concerned about accepting financial support during this time and you would like to discuss this further in detail then please do not hesitate to contact the Harrowells Family Law Team.