It is becoming increasingly common for family members who have loaned money to their children, to seek advice as to if there is anything that can be done when that money is spent on an asset, which is then captured in divorce and financial remedy proceedings.
The divorce scenario
Albert and Betty wish to loan to their three children (Cecil, Donald and Edward) the sum of £100,000 each, to help them all onto the property ladder. Cecil and Edward are both single, but Donald is married to Frieda. The payments are made, and Cecil, Donald and Edward buy their respective properties.
Some years later, Donald’s marriage to Frieda irretrievably breaks down and divorce proceedings have begun. When dealing with the financial issues arising from divorce, he is surprised to learn that despite purchasing the property in his sole name, and Frieda being aware the money from Albert and Betty was a loan, it forms part of the assets to divide upon divorce.
Albert and Betty are concerned about their £100,000 loan, as these were funds they were anticipating would be returned to them; and they wish for Donald to retain the funds and repay them as agreed, but they understand Frieda is suggesting she keeps half. Donald and Frieda do not agree on how to divide their finances and therefore Freida has issued financial remedy proceedings at court.
Is there anything Albert and Betty can do?
The options available will depend on whether there is a loan agreement or the terms under which the funds were loaned. They may be able to ‘intervene’ in the financial remedy proceedings between Donald and Frieda. Often, these type of claims arise from informal or fluid arrangements, where there have been conversations about loaning money and there are no documents evidencing the intention behind this. Disputes as to ownership tend to arise where one person views the advance as a loan and the other as a gift.
What is an intervenor?
An intervenor is someone who says they have a claim to the assets of others. This could include a beneficial interest in a property or an interest in a company.
In this particular situation, Albert and Betty may have a claim due to the £100,000 loan that Donald used to purchase property and therefore may be able to intervene in the financial remedy proceedings between Donald and Frieda. Careful consideration needs to be given to intervening due to the time and costs involved; as such specialist family law advice is required before determining the best course of action.
What is the difference between a party and an intervenor?
A party to proceedings is a one of the people who form part of the original claim. In the circumstance of court proceedings to determine how assets are to be divided arising from divorce, this will be the couple who are dividing their assets. In the above scenario, Donald and Frieda are the parties.
An intervenor may be impacted by the decision of the case and are therefore ‘joined’ to it. Albert and Betty may be impacted by the decision, and may be able to intervene and therefore be joined to the proceedings between Donald and Frieda.
What does an intervenor do?
An intervenor joins the proceedings, to defend the claim they have on assets, which may be impacted by a divorce. They will need to file statements with evidence and in all likelihood need to give oral evidence in court.
It may be, instead of intervening, evidence can be provided via a witness statement, to provide the court with the information required. During an initial appointment with a specialist family lawyer at Moore Barlow, the options are explored to determine the possible avenues and what the implications of each of these are.
How do I intervene?
Intervenor proceedings are complex, and an assessment as to the likely success of intervening will need to be completed first. Careful consideration is needed as to the what the objective is, and if there are alternative ways to proceed: for example, entering evidence via a statement but not being joined to the proceedings themselves. Intervenors are a separate party and so they have a different solicitor to the parties who are divorcing.
During the financial remedy proceedings, if a party (e.g. in this case Donald) says that funds, a property or another asset either belongs to someone else or someone else has a substantive interest in it, then a judge will be alive to the issues this will present when dealing with division of assets on divorce. If there is a disagreement as to ownership or interest in assets, then this needs to be determined first so assets for division in the divorce are known. The judge may provide the person with the interest the option to join proceedings, meaning to intervene, or to file evidence by way of a statement. It will then be for them to consider whether they wish to intervene and inform the court. Alternatively, an application to intervene can be made by either party, in this case Donald or Frieda, for the court to consider.
An invitation to intervene does not have to be accepted and it is important to seek specialist advice at an early stage to understand the process and the implications.
The threshold for intervening is not onerous, but often the costs are substantive and a proportionality exercise must be conducted. There will be additional court hearings, witness statements will need to be drafted and it may be more prudent to have evidence before the court by way of a witness or disclosure of a document without having someone intervene.
Costs of Intervenor proceedings
Intervenor proceedings have different costs rules to the financial remedy proceedings. Usually, each person pays the cost of their own legal representation but when intervening, if you win your claim then you can claim your costs. If you are not successful you may have to pay the costs of both the other parties, which can be incredibly expensive. This is one of the reasons why an analysis of the likely success of the claim is required before embarking upon intervenor proceedings.
Is there anything that could have been done to protect the money?
When money is being loaned, a loan agreement is important. This shows the intention that the funds are to be repaid and will stipulate the terms of the lending.
In family proceedings, the court is faced with a decision on whether family loans are classed as ‘hard debt’ meaning they have to be repaid or ‘soft debt’ meaning they do not need to be repaid. [link to other article on funding legal fees]. If a judge determines that the funds do not need to be repaid, then the loan will be disregarded and the full sum will be available for division when considering how to divide the assets upon divorce. In this scenario, if Albert and Betty intervened regarding the £100,000 they provided to Donald and a judge decided it did not need to be repaid as it was viewed as a ‘soft loan’, then it would not be deducted from the assets before the division. The family court has a wide discretion and so loan agreement documents are not binding on the court but are strong evidence as to the purpose of the funds and the intent for the funds to be repaid.
A post nuptial agreement could be considered, to protect the funds advanced and ‘ringfence’ them from the marital pot. The likelihood of this being successful will depend on what the funds were used for and the overall financial landscape of the couple in question. A family lawyer will be able to provide advice on the likely benefit of a post nuptial agreement in this situation.
For Cecil and Edward, who are both single and purchase property, if they were to consider marriage in the future, a pre-nuptial agreement may be considered sensible. Again, specialist family law advice can be provided and it will depend upon the financial landscape between them and their partners at the time.
What situations may lead to an intervenor?
Any situation where someone wants to protect their claim to an asset which may be considered as part of a divorce can consider whether they wish to intervene.
Examples where someone may consider intervening are:
- An interest in monies which have been loaned and you expect to be repaid;
- An interest in a business which may be divided; or
- A legal or beneficial interest in a property which may be divided.
A judge will need to understand your claim and determine whether you do have an interest in the asset in question, before they can then proceed to divide the marital assets between the people who are divorcing.
How can Moore Barlow help?
Our experienced Family law team will be able to advise you on the options available to you, and help you navigate a complex area of family law.
If you would like further information, please do not hesitate to contact once of the team who would be pleased to discuss your needs.
