Gifts can come from a variety of sources, such as between couples during the course of the marriage, or from parents providing a deposit on a first home. When it comes to divorce or dissolution, the origins of a gift and whether they are considered matrimonial or non-matrimonial property determine if they can be protected on divorce.
Are all gifts considered matrimonial property?
Any assets acquired during the marriage that exceed £500 in value are generally added into the matrimonial pot. This means that gifts between spouses are usually deemed matrimonial property, and can even include the engagement ring.
Gifts from parents or other third parties to one spouse only, will typically become matrimonial property. And gifts intended to benefit the couple jointly will almost always be considered part of the matrimonial pot.
Any assets inherited by either party are often treated differently from other assets during a divorce. If money is inherited during the marriage, the circumstances surrounding whether or not it will be added into the pot depend on a number of factors. Not least the length of the marriage and whether it was used as part of shared finances.
Relevant gifts will be added to the overall asset pot which is then divided between the parties with the starting point being 50:50. Although, the court may decide that one party is entitled to a larger share when taking account of both party’s needs, earning capacity, any children, etc.
Can a loan from my parents be considered a gift for divorce purposes?
Formal loans, as opposed to gifts hidden as loans, are less likely to be included in the matrimonial asset pot. However, proving when a loan is a loan as given by a parent can be problematic. This is why it is important to make sure that you have a formal loan agreement or at least some other form of documentation proving its validity.
You may be able to rely on emails indicating that repayment is expected, on condition of the individuals loaning the money needing to cover nursing home fees, for example. The court will also look at what was said or done during the marriage. Any repayments made since the loan was provided will be crucial evidence, as will any communications chasing up missed payments. In the absence of good evidence, loans are most likely to be treated as gifts and therefore added into the matrimonial pot for distribution.
How can I protect any gifts I receive during the divorce?
The first and most obvious is a pre- or post-nuptial agreement which can help protect gifts received before or after marriage. This is a contract entered into before the marriage, or during it, specifying how the assets of each party should be divided in the case of separation or divorce. Although these types of agreements are not legally binding, providing they meet certain criteria, the court can, and often does, hold couples to its terms.
Another issue that can arise is regarding items gifted to one or both parties. When a gift is made during a marriage, it is therefore important to keep a record of who the gift was intended for, and to ensure that subsequent arrangements, such as whose name the insurance policy is in, are consistent with that.
It is also important to consider how a gift is treated once received. For example, if a mother gifted a valuable item of jewellery to her son, but it is kept in the matrimonial home and is worn by the wife, the item is more likely to be deemed a matrimonial asset. Whereas if the jewellery was kept in a safety deposit box and not worn by the wife, it would be easier to argue that it is non-matrimonial.
If your parents decide to provide a financial gift to help with the purchase of a property, a Declaration of Trust is worth considering. This is a document that sets out who has a financial interest in a property and how much this is if the financial interests differ from those registered as the property owners. The Declaration of Trust could also state that in the event of a separation, the money loaned is returned to the parents. It may also include a clause that the loaning parent’s child owns a larger share of the property as a result of the gift. Although the extent to which this clause would be upheld by a court depends on the circumstances of the case and the needs of the parties.
Your parents may also consider setting up a trust fund in your name or even their grandchild’s names. Such trusts can be a useful tool to protect any gifts or inheritance. In these circumstances, it is advisable to obtain specialist financial and legal advice, as trusts are an incredibly complex area of law.
Gifts that are only intended for one party can also potentially be kept out of the financial settlement if the marriage is short and the gift was kept completely separate from the marital finances.
It is important to be aware that assets can change from non-matrimonial to matrimonial over time. If an inheritance was received during the marriage, the court may look towards how it was used before deciding whether or not it might be divided. For example, if the money was in a joint account and used by the couple, it may be considered joint property.
Can future inheritance be part of a divorce settlement?
When it comes to future inheritance, they are not usually taken into account by the court when a couple is divorcing. However, this isn’t always the case. So if the person giving the inheritance is expected to die in the near future and the amount is expected to be significant, it may mean that it could be taken into account and form part of the divorce settlement. Sometimes, the court may decide to adjourn the settlement until the party in question has received the inheritance.
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