Loans in Family Law Matters

• Publication year: 2018
• Author: Ira M. Friedman & David Friedman

Loans In Family Law Matters

Ira M. Friedman & David Friedman

Ira M. Friedman is a partner in Friedman & Friedman Lawyers, Beverly Hills. He is a Certified Family Law Specialist and a Fellow of the American Academy of Matrimonial Lawyers and Fellow of the International Academy of Family Lawyers.

David Friedman is a partner in Friedman & Friedman Lawyers, Beverly Hills. He is a Certified Family Law Specialist.

Afriend or relative of one of the parties "loans" money to the parties to purchase the family home. The parties separate and in dividing community property and community debts this loan comes up. The party whose friend or relative who loaned the money would of course like the loan to be repaid out of the proceeds from the sale of the house. The other party does not want the loan to be repaid out of the sale proceeds which will result in more money for this spouse. As they say on the bar examination - what are the issues and the law on the issue of repayment?

The issues are:

1. Is the loan evidenced by a writing with the terms and conditions set forth in the writing?
2. When was the written agreement executed?
3. When is the due date for the loan?
4. If the loan is a demand promissory note, was a demand made and if so when?
5. If the loan is oral, when was it made?
6. If the loan is oral, if it is a demand loan, when was a demand made?
7. If the loan is secured by a deed of trust, when was the trust deed executed?

The answers to these questions will determine the enforceability of the loan and in turn if it will have to be paid back from the proceeds of the sale of the home.

If the loan is an oral agreement, there is a 2-year statute of limitations¹ regarding the enforcement of the loan; however, as Samuel Goldwin once said of oral agreements: "They are not worth the paper they are printed on." Most often, you end up with one party saying "yes" and the other party says "no." Not a great position to be in at trial. This may be especially true if the loan is from a parent or family member. In addition to the skepticism with which a judicial officer may view a "loan" from a parent to a child, the fact that there is no writing to evidence such loan only makes it look more suspect.

In regard to a written agreement or promissory note, while it may lack some uncertainty, unless some major points are covered in the written agreement, its enforceability may suffer the same fate as an oral agreement. When family members borrow money from other family members if the agreement is even in writing...