Mishcon de Reya page structure
Site header
Main menu
Main content section
Building abstract

Guidance on treatment of soft loans - P v Q [2022] Lexis Citation 14

Posted on 31 August 2022

The parties to a financial remedy application in the Central Family Court each asserted that previous payments made by their parents were loans, rather than gifts, and needed to be repaid. HHJ Hess accepted that the payments were loans, but considered both to be "soft" loans. He noted a number of authorities on the question and formulated guidance on the treatment of hard vs soft loans, which included:

  • Once a judge has decided that a contractually binding obligation by a party to the marriage towards a third party exists, the court may consider whether that obligation is in the category of a "hard" or a "soft" loan. If the former, it should appear on the Judge's computation table. If the latter, the judge may as an exercise of discretion to leave it out of the computation table.
  • There is not hard or fast test as to when an obligation or loan will fall into one category or another
  • The analysis will commonly consider whether or not it is likely in reality that the obligation will be enforced.
  • Factors that support the conclusion that a loan is "hard" include (1) the fact that it is an obligation to a finance company; (2) that the terms of the obligation have the feel of a normal commercial arrangement; (3) that the obligation arises out of a written agreement; (4) that there is a written demand for payment, a threat of litigation or actual litigation or actual or consequent intervention in the financial remedies proceedings; (5) that there has not been a delay in enforcing the obligation; and (6) that the amount of money is such that it would be less likely for a creditor to be likely to waive the obligation either wholly or partly.
  • Factors that support a conclusion that a loan is "soft" include: (1) it is an obligation to a friend or family member with whom the debtor remains on good terms and who is unlikely to want the debtor to suffer hardship; (2) the obligation arose informally and the terms of the obligation do not have the feel of a normal commercial arrangement; (3) there has been no written demand for payment despite the due date having passed; (4) there has been a delay in enforcing the obligation; or (5) the amount of money is such that it would be more likely for the creditor to be likely to waive the obligation either wholly or partly.

Claire Yorke says: This is an issue which comes up frequently and brings with it emotional as well as financial pressure. Although the decision is at Family Court level, given HHJ Hess is the Lead Financial Remedy Court Judge for London, it's an important decision which should be borne in mind when advising clients regarding alleged loans (both those they have taken out and those they may take out during proceedings). The documentation and terms that support the loan, along with the impact it would have on the lender if the funds were not repaid will be central to how the Court treats the alleged debt. In circumstances where the Court has a great degree of discretion, clients need to be properly advised before accepting funds from friends and family members.

How can we help you?
Help

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

I'm a client

I'm looking for advice

Something else