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Rising prices and other issues have made it more difficult recently for people to make ends meet and some may have to request a loan from a relative to handle the short-term financial issues.  Alternatively, you might be considering a divorce but do not have the full amount of money to handle the attorney's retainer or ongoing fees and costs, so you are considering taking a loan from a relative to help with these costs. 

As a divorce lawyer in Oakland County Michigan who has been practicing family law since 1996, I can say that I am seeing more instances of personal loans that have to be addressed in divorces.  This blog is intended to broadly address how personal loans should be handled to make sure that they are included for division in the divorce, failure to do so may result in the loan being characterized as a gift or otherwise leave the one spouse solely liable for this debt without any contribution from the other spouse.  If you have questions regarding your own situation, please contact us to schedule a consultation by clicking on this ling or calling (248) 608-4123.

How Should I Handle A Personal Loan If I Might Be Getting Divorced

First, you should be very careful about documenting the loan.  You should have a written document that at the very least states the amount of the loan, the date of the loan, when the loan was made, the reason for the loan if possible, the names of the lender and the borrower as well as their relationship to one another, whether there is any interest charged on the loan, whether there will be specific monthly payments and very importantly when the balance of the loan must be paid-in-full.  I also suggest that you open a separate bank account and deposit the proceeds from the loan into that account until such time as the funds are to be used.

All of this documentation will help to show that it is not a gift of money that does not have to be repaid, but rather a loan that must be repaid therefor each party should be responsible for re-payment of one-half of that loan.  Alternatively, the balance could be offset against other property that is awarded to either party, for instance if one party is awarded a home with equity of $100,000 but is also taking full responsibility for personal loan in the amount of $100,000, then it would just be a wash and no payment would be due to the other spouse.   

Even if you are not considering a divorce and you are considering taking a personal loan from a relative for whatever reason, you should still carefully document the loan and have your spouse sign the loan document as well.  I have been practicing divorce since 1996 and because of all the divorce cases I have handled and the manner in which people can act during a divorce, I now also advise that if you are married and one of your relatives wants to gift some money, then you should either document this gift as a gift to only you and deposit the same into a separate account solely in your name and then you can use it as you see fit or share it with your spouse as you see fit and if you get divorced then it remains your separate property.  Alternatively, you could call it a long-term interest free loan, with a one-time balloon payment and deposit the same into a separate account either in both names or in the name of the spouse that is related to the lender.  That way if you do spend that money and thereafter get divorced, your spouse is responsible for repayment of half of that money because it was a loan and not a gift.

Finally, if you are considering borrowing money to retain an attorney because you do not have access to marital funds but your spouse earns a significant income and has control of the accounts, I advise against borrowing money to retain an attorney before you actually consult with a divorce lawyer.  In some cases, the law provides that if one party controls the funds and is the wage-earner, the other party can demand that the controlling spouse pay the retainer for the attorney.  Typically, the attorney would agree to a small retainer or flat-fee to represent the client on the basis that the attorney will demand payment of their full retainer from the other spouse, if the other spouse does not pay, then the attorney will file a motion and request that the judge order the other spouse to pay.  If that motion is successful, then a loan is not required and your spouse will share the cost of your attorney.  If the motion is not successful, then you may have to look into obtaining a loan to pay the family law attorney's full retainer or the attorney may have to withdraw at that point if you can not afford to pay for their services. 

If you are married and you are considering taking a personal loan or someone is planning to gift you some money, particularly if there is any concern that a divorce may be on the horizon, please schedule a consultation to discuss with us how you should proceed by clicking on this link or calling (248) 608-4123.