Following a relationship breakdown, the parties often need to enter litigation to resolve their practical and financial arrangements, and family members may also become involved in the litigation where, for instance, they have loaned money to the parties or hold an interest in a matrimonial asset or home.
There may be dispute as to the nature or repayment of the loan, or who owns a property and in what shares such property is held. Following a divorce or relationship breakdown, family members may seek to call-in their loans and may be concerned to protect their interest in a relevant property or asset.
In the case of a debt owed to a family member, it is unusual for that family member to become a party to the relationship litigation. However, the party asserting the debt will usually file evidence of the debt’s existence, and if the other party does not accept that the loan is genuine, the family member may have to give evidence to the court. The court will consider how ‘soft’ the loan is, when it will be called in, whether it has been manufactured to decrease a party’s assets, and whether the loan is in reality a ‘gift’. The more formal the loan agreement and repayment arrangement, the more likely it is that the court will take the loan into account.
The situation may be more complicated where a family member claims to be the co-owner of property owned by one of the parties. If the actual legal ownership of the property is disputed, it may be necessary for the family member to be joined to the relationship proceedings so that the court can determine the interest of the parties. This may also be the case if the beneficial ownership of the property is in dispute. The court’s determination on the ownership of the house will be binding upon the family member.
The litigation process can be very expensive. If the family member successfully asserts an interest in the property or asset, the court is likely to order that either or both parties meet the family member’s legal costs as well as their own. If the family member is unsuccessful in his/her claim, the court is likely to order the family member to meet the costs of the parties in addition to their own unless the court considers that it was reasonable for the family member to bring his/her claim.
It is essential for all involved, therefore, to consider the costs implications of such proceedings against the viability of alternative resolution processes such as mediation or negotiation through solicitors, as the costs of such proceedings may be disproportionate to the sums at issue.
Please contact our Family and Divorce team for further information and advice at: firstname.lastname@example.org