Soft Loans in Divorce
Dispute over repayment of it
Parent provides loan to buy house
So what happens when one parent provides a soft loan
to their child, being one half of a married couple and
then that couple splits up? For an example, where a
husband’s father lends money to his son to assist with the purchase of the matrimonial home and the father seeks repayment of the soft loan from the sale proceeds. In these situations, the court must determine the issue during the financial remedy proceedings so that the correct share and resources available to both parties can be established.
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Loan rather than a gift
Where there is a dispute about the loan given to a spouse, the third party i.e. the father in the example above, can be joined into the financial remedy proceedings so that the court can determine the issue. The spouse seeking to rely on the loan will need to provide evidence to support his case that the monies were a) given to him by the third party and b) that they were given to him as a loan rather than a gift.
Case reports on soft loans
In the case of a divorce, it may be necessary to rely on the judgement of the courts to determine whether a loan is hard or soft. If a judge decides that the loan is a soft one, it is down to their discretion as to whether or not it is included in the divorce’s financial considerations. In the recent case of P v Q [2022] EWFC B9, HHJ Edward Hess gave useful guidance the treatment of soft loans in financial remedy proceedings. His guidance is relevant to everyday practice as this topic frequently features in negotiations and during litigation.