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At this time of year, many divorces are started and often financial pressures have played their part in that decision. With recent statistics showing that almost 50% of first time buyers receive some financial help from their family (or, ‘the bank of mum and dad) it is not surprising that when a marriage breaks down these issues can come to the fore.

If the parents who made the contribution had the foresight to register their loan at the Land Registry in the same form as a mortgage lender would then, in a subsequent divorce, a court would have little choice but to recognise the validity of the loan and the need for it to be repaid. In many family situations however a loan/gift from parents is of less certain status. Often a dispute arises as to whether it was actually a loan or a gift, and if a loan, what were the term of the loan or in fact was it what the courts tend to call a “soft loan” – i.e. a loan that may not be repayable for many years if at all. Historically and understandably the divorce courts have tended to treat soft family loans differently to actual loans/mortgages from banks or building societies.

The issue of recovering family loans/contributions is a very important one. Often if only one spouse’s family made a major financial contribution whether it was a loan or a gift this could make a big difference to the outcome of the divorce, especially if the marriage breaks down at a relatively early stage. If the parents who made the loan take separate legal advice and seek to recover the loan, they may then subsequently be able to assist their child to get back on the housing ladder again. Even if the contribution is not a loan, the very fact that one side of the family gave a substantial sum of money can be a contribution which could lead a divorce court to allow the spouse whose family gave the money to keep more of the equity in the house – it doesn’t necessarily have to be divided equally. It is therefore really important for a family who made a substantial contribution to a matrimonial asset to take legal advice when the marriage breaks down – the sooner action is taken to stake the claim for repayment the better.

Finally, if parents are considering making a loan to a couple about to marry the advice is to have that loan drawn up as a proper registerable debt and to encourage their son or daughter to have a prenuptial agreement or at least a declaration of trust referring to the contribution by their family. That way there should be less stress and dispute if the marriage sadly breaks down.