Gifts Versus Loans; What’s the Difference and Why are they Important?

One of the most important issues that a court decides in a dissolution of marriage action is the allocation of marital property, or in non-legal terms, who gets what. In Colorado, any property obtained by either party during the marriage (with some exceptions) is considered marital property and is divided equitably by the court. C.R.S. § 14-10-113. Any property obtained by a party before a marriage, and is kept separate from the spouse for the duration of the marriage, is considered separate property which is not divided among the parties.

An issue that commonly arises is when a family member gave a large amount of money to spouses, such as for a down payment on a house. The legal question that is created is whether that amount of money is a gift or a loan. A loan is considered marital debt, and just like marital property is divided among the spouses after a divorce. A gift that is not comingled with the other spouse is considered separate property and remains in the possession of one spouse after a divorce.

While a loan from a creditor, like a mortgage, is clearly not a gift (as anyone with a mortgage can attest), loans from family members can be unclear. Courts presume that any amount of money transferred from one family member to another is a gift, and it is the responsibility of the people to prove that it is a loan. Some of the factors a court will look at when determining whether an amount of money is a gift or loan are: (1) if the person has made payments on the loan, (2) if there is a written document detailing the loan, (3) if interest is being charged on the loan, and (4) the intent of the creditor.

This minor legal distinction can have a life-changing financial impact on a person who is going through a divorce. If you and your spouse are going through a divorce and either of you purchased assets or received a large amount of money, it’s important that you consult an attorney to discuss the legal options you have. The attorneys at Peter Loyd Weber & Associates, LLC will make sure that you receive a fair distribution of marital assets. Call us today for a free consultation at (720)863-7755.