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In a legal separation or divorce, the issue of whether money is owed to the parents of either spouse is not uncommon. In many marriages that end up in divorce or legal separation, parents loan money to their children or to their children and spouse. When the spouses are married, this is not an issue for the Family Law Court to decide however, upon a divorce or legal separation, the San Diego Superior Court Judge will decide whether the debt is a community debt for division purposes. This can become a very contentious issue.
Of course, each spouse normally takes the position in their financial favor. The spouse whose parents gave the money would like it characterized as a loan and as a community property obligation for division in the legal separation or divorce judgment or order. The spouse whose parents did not give the money would like it characterized as either a gift to both spouses or, at a minimum, a gift to the spouse whose parents loaned the money however if it is determined to be a gift and funds remain and can be traced from this gift, then the giftee can request to have this remaining amount confirmed without division. Tracing is a very complicated issue and not addressed in this article and often needs a forensic expert. Given the time period of the gift and divorce or legal separation, it may be several years. Financial institutions have closed and others have been taken over by different financial institutions. Obtaining records several years in the past can be expensive and time consuming and the burden is on the person claiming that the money was a gift due to the presumption that all property acquired from date of marriage to date of separation is community property.
One issue, always, is the statute of limitations. If the loan is a written instrument, then the statute of limitations to pursue enforcement is four years. If there is no written instrument and the agreement is oral, then the statute of limitation is two years. If the debt is uncollectible due to the passage of time, then no equalizing credit would be given for his in the division of assets and debts. This information, as with all articles on this website, is as of the date of the article. You are instructed to check with an attorney to ascertain what the statute of limitations if this issue arises in your case.
Factors which a Judge will consider regarding whether this is a gift or a loan include, but are not limited to, the following: were any payment ever demanded; were any payments ever made; does a promissory note or other writing exist and, if so, was it signed by one spouse or both; has there been a past history of giving gifts by the parents; was the money received during a holiday period; was a gift tax return filed; who was the payee on the check and what were the proceeds of the check used for? Of course, the Judge will also consider the oral testimony and credibility of the witness[es].
If you have questions regarding loans or gifts in your divorce, please feel free to contact us for a free in-person or virtual consultation.