How are gifts treated in divorce or dissolution of a civil partnership?

How are gifts treated in divorce or dissolution of a civil partnership?

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 hardly surprising that so many seek the help from their family to get their foot onto the property ladder.  Well-intended 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 decide to separate?

‘As a family lawyer, we regularly see sizeable gifts being made by family members to help a newly married couple starting out.  While this is often money to buy their first home, it can also be money gifted to help out with a business venture, or to extend or move house,’ says Matt Clemence, head of the Family Law team with Kerseys Solicitors in Suffolk and Essex. ‘Difficulties can arise if that marriage or civil partnership later breaks down.  The spouse or civil partner whose family have been so generous may expect to see a larger share when it comes to dividing the matrimonial assets.  Unfortunately, that will not always be the case.’

What does the law say about gifts?

A gift can be any item, such as jewellery, vehicles or money provided to another person.

Personal gifts such as jewellery tend to stay within the ownership of the spouse or civil partner they were gifted to.  Joint wedding gifts, such as a valuable artwork or an antique, are treated as matrimonial assets regardless of whose family or friends gifted them.

Gifts can be redistributed by a court if that is deemed necessary for the fair division of assets.  For less valuable gifts, it is best to try and agree how these will be divided by proposing a list of the gifts you wish to retain.  For more valuable gifts, a formal valuation is likely to be required in order that the assets can be fairly accounted for in the division of assets.

Typically, it is monetary gifts that are most likely to cause conflict in attempting to agree the financial settlement after a divorce or dissolution of a civil partnership.

Issues with financial gifts

When money is paid by a parent or other family member without the expectation for repayment, and without an expectation of ownership or rights over how the money is used, it is deemed to be a gift.

In most divorces, gifts are treated along with the rest of the matrimonial assets which are subject to being divided.  That is because most divorces are dealt with on a ‘needs’ basis i.e. any financial settlement will cater for the financial needs of each partner or spouse.

Some divorces, typically those where assets exceed several million pounds, can be dealt with on a ‘sharing’ basis.  That is because there is significant excess wealth above that which is required to meet the financial needs of the separating couple.  In a sharing case, the court will consider significant gifts from one partner or a spouse’s family.  This may result in that spouse or partner obtaining a larger share of assets to reflect their family’s contribution.

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 not a gift.  This is because loans and gifts are treated differently by the law.  If a loan is made, then the loan needs to be repaid or taken into account prior to the division of assets in a financial separation.

In determining if the money provided was a gift or a loan, the court will examine all the surrounding circumstances and the detail of the terms of the alleged loan.  This is when documentation can be helpful.

Is there any documentation available?

Being able to provide a written loan agreement, specifying the terms of the loan and repayment 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 work, and typically a much less formal arrangement will be in place.  Therefore, examining any other documentation that can support the claim that this was a loan would be helpful.  This could be text messages, emails, thank you notes, or proof of some repayments having already been made.  Ultimately, proving a loan without formal documentation can be very difficult.

How we can help

If you are concerned over what might happen to your family gift or loan when you separate, or if you want to ensure protection over a gift or loan before it is made, then please contact one of our expert family lawyers who can advise you on the best option to suit your circumstances.

For more information or to book an initial consultation contact our family law team today at Kerseys Solicitors in Ipswich at [email protected] or telephone 01473 213311, Kerseys Solicitors in Felixstowe at [email protected]  on 01394 834557 or Kerseys Solicitors in Colchester at [email protected]
on 01206 584584.