Gifts of money and loans received during the dissolution of marriage process can result in unintended implications. Although borrowing funds is often a necessity as families navigate the new reality of supporting two households, it’s important to understand the subsequent obligations associated with said borrowing. Parties to a divorce should consider the following before accepting those monetary gifts or loan:
- Expectation of Repayment
The courts differentiate between loans and gifts by looking at the intended expectation of repayment. A loan is expected to be repaid under specific terms, while a gift has no expectation of repayment. With finances under extreme scrutiny during a divorce, the expectation of repayment should be clear in order to properly characterize the funds.
- Donative Intent
Courts will also assess whether there was donative intent, or desire to gift the funds to the recipient. When families are exchanging funds, judges will be skeptical in reviewing the transactions. In Illinois, a transfer of an asset from a parent to a child is presumed to be a gift. Depending on the circumstances of your case, designating funds as a gift can either be beneficial or detrimental to your position and the overall allocation of the estate.
- Get it in Writing
The safest practice when dealing with money is to document it in writing. All terms should be well spelled out including interest fees and payment schedule. If an asset is secured as collateral, the lien should be recorded in the public record. A properly prepared written document will provide both parties to the note, and the Courts, with clarity regarding the parties’ intentions.