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The Government’s 2022 English Housing Survey reported that 27 per cent of first-time buyers used gifts from family or friends to fund their house deposit.  With the average deposit now required exceeding £43,000, it is unsurprising that so many seek the help from their family to get their feet on to the property ladder.  Well-intentioned parents will often gift large sums of money to their adult children without taking any legal advice or having any formal documentation drafted. But what happens if the couple for whom the house has been bought with that financial assistance later separate?

In family law, it’s common for family members to provide financial support to couples at the start of their relationship. This support often funds their first home but can also be a gift for a business venture or to extend or move house. Challenges can occur if the marriage or civil partnership later dissolves. The partner whose family contributed significantly might expect a larger share when dividing matrimonial assets. However, this expectation doesn’t always align with legal outcomes.

What does the law say about gifts?

A gift can be any item, such as jewellery, vehicles or money provided to another person with the intention, often unspoken, that it will be the property of the recipient.

Personal gifts such as jewellery will very often remain in the ownership of the spouse or civil partner to whom they were gifted.  Joint wedding gifts, such as a valuable artwork or an antiques, will often be treated as matrimonial assets in which a couple will share jointly regardless of whose family or friends gifted them.

Any gifts received by a couple can be redistributed by a court in proceedings for the ending of marriage or dissolution of civil partnership if that is deemed necessary to achieve a fair division of their assets.  For less valuable items, it is usually best to try to achieve a fair share for each party by listing all of the relevant items and each party picking in turn those that they wish to keep.  For more valuable gifts, a formal valuation may be required so that the balance of the value of these assets is fairly accounted for in the overall division of assets.

Typically monetary gifts are most likely source of conflict in attempting to agree the financial settlement after a divorce or dissolution of a civil partnership and these may involve third parties who may claim the sum is a loan rather than a gift.

Issues with financial gifts

When money is paid by a parent or other family member without any expectation of repayment it is going to be found by the courts to be a gift and not a loan.

In most divorces gifts are treated, along with the rest of the matrimonial assets, as potentially subject to sharing between the divorcing couple. This is because most divorces are dealt with on a ‘needs’ basis in which the available resources are required to be divided to enable each party to meet their own personal liabilities and a financial settlement should provide for the financial needs of both parties to be met.

Some divorces, typically those where assets exceed a million pounds or more, are dealt with on a ‘sharing’ basis.  This occurs where there is significant excess wealth above that which is required to meet the financial needs of the separating couple.  In a sharing case there is more scope for a court to consider the source or contribution to the parties wealth that may have come from or through one party rather than the other and significant gifts from one partner or a spouse’s family may result in that spouse or partner obtaining a larger share of assets to reflect that family’s contribution to the total marital wealth.

Is it a gift, or a loan?

It is not uncommon to find, after a separation, that the family who generously provided money claim this was in fact a loan and not a gift.  As loans are treated differently by at law if a loan is made, then the loan will need to be repaid, or taken into account as a liability before the division of assets between a couple who separate.

To determine if the money provided was a gift or a loan, the court will examine all  of the surrounding circumstances and the terms of the alleged loan and to see what evidence there might be to support the idea that the money might be sought to be recovered and in this respect documentation may be most helpful.

Is there any documentation available?

Being able to provide a written loan agreement, specifying the terms of the loan and repayment due and which has been signed by both spouses or partners and witnessed would be ideal.  Unfortunately, in our experience this is not how most families function, and typically actual repayments may have to be shown to be made.  Other evidence that might support the claim that there was a loan could be found in text messages, emails,  or thank you notes.  Ultimately, the court would need to decide according to the weight of the evidence whether it was more likely than not a gift or a loan.

How we can help

If you are concerned over what might happen to a family gift or loan when you separate, or if you want to ensure protection for a loan rather than a gift before it is made, then please contact one of our expert family lawyers who can advise you over your best course of action.

For further advice please contact one of our Family Law experts.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published