Whenever a divorce occurs one of the primary elements that need to be resolved is the financial settlement, and it is imperative that legal advice is sought from a family lawyer.
One aspect of the financial settlement that often causes the most confusion and angst is in relation to money and property which the couple has received from their respective families, especially their parents.
More often than not, this is money that one set of parents has given the couple, either at the time of their marriage or subsequent to it. When a divorce occurs, how this money is accounted for will play a large role in its division as property, if it is in fact regarded as property at all.
This is due to the fact that in several divorce cases, one of the parties to that divorce has claimed that money given to them by parents or the family is a loan, as it suits their position, while in other circumstances it will be claimed it is a gift by one of them.
Depending on whether it is seen as a gift or a loan has huge implications for the amount of the financial settlement, especially if the couple cannot come to an agreement on it.
When this happens, it will be for the court to determine the financial settlement, and how the court views monies from parents will mean that one party or the other might consider themselves to win or lose financially, as a result.
To outsiders, it might not seem to matter whether money given to a couple is seen as a gift or loan, but for that divorcing couple, it is vitally important which way the court views it.
If it regards the money as a gift, then whatever it was used to pay for will be seen as an asset, and thus divisible between the two parties as part of the property settlement. This includes purchases such as shares, or if used as a deposit on their home when it was purchased.
On the other hand, if the money received is considered a loan, then that liability normally falls on each individual. The difference this can make is significant in terms of the financial settlement, as the example below will show.
Consider if $20,000 was given to the couple by the husband’s parents and it was used to buy shares and other investments. This will be seen as property to which both the husband and wife are entitled to a share of. This might upset the husband, and possibly his parents, but that is how financial settlements work.
Alternatively, if it can be proven that the $20,000 was a loan to the couple from the husband’s parents, then a fair share of that liability needs to be paid back to each of them. The key is proving it was a loan, which is not always possible.
If there is no written agreement or documentation to show that the parents were lending, instead of gifting the money, then the court is not going to entertain it was anything other than a gift, and thus an asset to be shared.
Another point is that although the money may have come from either the husband’s or the wife’s parents, if it was gifted at the time of the marriage, or when the couple was buying their first home, there is likely to be an assumption that the gift was to the couple, rather than their son or daughter alone.