Loans and Gifts in a Divorce

Loans and Gifts in a DivorceTypically, it is not difficult to determine if a debt is legitimate. A lawyer can help you determine whether specific items in the marital estate were loans or gifts.

Usefulness of Paperwork

Typically, a borrower will send monthly statements that include the payment amount and work to make sure lender receives the money on time. It may not work that simply when money is owed to parents, relatives or friends. These types of debts are problematic because they could actually be considered gifts.

Problematic Cases

Unfortunately, in some cases there is no real way to determine whether a debt is a gift or not. A good example is of a parent giving a child and spouse a significant amount of money for a down payment on a house. When the money was provided, there was no contract of debt, no interest established and no paperwork that the money was ever borrowed or that the parent expected to get it back.

The parent may have given it to the couple as a gift. However, the parent may have treated it as a gift but stipulated that the couple respect him, receive visits from grandchildren, and promise to stay together. If this is the case, the parent may try to collect the money he lent if the couple divorces. 

Debts as Liabilities
Certain conditions can show that a debt is a liability and should be considered marital property. The conditions include: an agreement by both spouses that the borrowed money is marital; there is paperwork outlining the debt; there are fixed arrangements in terms of repaying the money; there is interest due on the current balance; payments are made regularly; a bank or another third party is managing the debt; and the lender tries to collect the money. When these specific conditions aren't there, the money is a gift and shouldn't be part of the marital estate.