What happens when Eric Wolf borrowed money from a friend or family at some point in the marriage to assist in making a down payment on a house? Is that loan a marital debt that they both properties are responsible for paying back?
After determining if it was a loan or a gift, Ryan breaks down the different factors that the court looks at to determine whether or not a borrowed amount is a real debt.
Some of the factors are:
For further information on gifts to the marital estate, you can also listen to Episode 84 on Economic Fault and Dissipation of Assets and Episode 90 on Gifts to the Marital Estate.
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Ryan Kalamaya (1s):
Welcome to Divorce at Altitude, a podcast on Colorado family law. I'm Ryan Kalamaya each week, along with my business partner and cohost Amy Gosha or an expert, we discuss a particular topic related divorce or co parenting in Colorado. In addition, we have created a short series of lessons that will take you through the legal process of divorce and answer your questions from simple to complex divorce. Isn't easy. The end of a marriage, especially when children are involved, brings a great deal of loss and change. We hope these practical tips and insights will help you On your journey to a new and better life.
Ryan Kalamaya (42s):
This how to episode on What Happens When a Party to a Colorado divorce claims that they have borrowed money from a friend or family member. Let me give you an example of what I'm talking about and you guessed too. I'm going to introduce that's right. Our friend Eric Wolf, let's say the Eric and Melanie are going through a divorce. And at some point during their marriage, they've purchased a really nice house. And Eric came up with $250,000 for the down payment. Now, if that came from his wages and other earnings during the marriage, there's really no question whether or not that is marital property. And if he, however, came up with money from his dad, Gary Wolf, then the issue becomes was the money that Gary provided Eric, was it a loan or a gift?
Ryan Kalamaya (1m 26s):
And I would encourage you to check out episode 90 in which I explained the concept of gifts to the marital estate. You'll understand why people frequently will claim later in the divorce that they have borrowed money and it's actually a marital debt. Let me also add that if Eric had borrowed $250,000 from the bank, and that was his mortgage, there'd really be no question about whether or not that is, or is not a legitimate debt, same thing with a credit card. If Eric came into the divorce process and claims that he has $30,000 owed to a credit card company produces a statement again, there's really not going to be any dispute as to whether or not that is, or is not a legitimate marital debt.
Ryan Kalamaya (2m 8s):
There could be some sort of disagreement as to whether or not that debt was for marital purposes or there's some sort of dissipation. And you should check out that episode on which I explained dissipation that's episode 84, but really what we're talking about is Eric claiming that the $250,000 that went into the house was actually a debt owed to Gary. Now let's put a few different examples out there, so you can really understand the example and how this comes up or is addressed in a divorce. There's a couple of factors that the Corps is going to look at, and these are borrowed from the IRS because the difference between a loan and a gift is also addressed because it relates to income and taxes.
Ryan Kalamaya (2m 53s):
So the tax court has provided guidance in which Colorado has largely adopted in. These factors are helpful to understand whether or not that $250,000 is going to be seen as really a debt or a gift. The first is whether or not there was a written agreement and in is, is there a promissory notes or some sort of writing, or was there just simply a transfer or a check from Gary to Eric for the $250,000? There's also some gift tax considerations, whether or not Gary filed a gift tax return, but going along through those will be a question as to whether or not interest was charged by Gary, had Eric ever paid back, Gary, if there were regular payments or if the promissory note had some sort of schedule of regular repayments, the other question, or other factor could be considered as collateral.
Ryan Kalamaya (3m 45s):
Was that promissory note, was it recorded? Was it a deed of trust and filed as a lien against the underlying property in this case, a marital residence and whether or not that was, or was not taken, you could matter as to whether or not the court is going to see it as legitimate debt. As I previously mentioned, the court's going to look at whether or not Eric has actually made payments. Were they fairly consistent? That's going to matter for whether or not the court considers it legitimate. Was there a reasonable prospect for the repayment? Did Eric, for example, borrow $10 million. And is that reasonable to consider given the circumstances of Eric's financial health or is it just monopoly money that they're just trying to paper up courts.
Ryan Kalamaya (4m 27s):
Those are going to look at when the promissory note was made. So is it done for purposes of the divorce? Was this promissory note created a month ago or was it made 10 years ago? And that then results in an issue of the statute of limitations. There haven't been any payments made or there hasn't been a demand for payment. Then the court's going to look at the statute limitations because the Garry might not even be able to bring an action in order to enforce. And that also raises the issue is that the divorce court has jurisdiction as to whether or not there is, or is not alone considered for dividing marital property. Court's not gonna need to determine whether or not Gary does or does not have rights.
Ryan Kalamaya (5m 11s):
And it was also worth mentioning that Gary, he could file a separate legal action against Eric. And if there's a promissory note, that's signed by Melanie, he could also file legal action against Melanie and the divorce court. Can't do anything really about that, but there's going to be all variety of factors that the courts can consider in determining whether or not that for example, $250,000 is, or is not a real debt. Now I final couple of points that are again on point would be whether or not if there was some sort of loan, there could have been a legitimate loan that was done by Gary, but then later forgiven. And that we frequently will see that we will also see loans made for attorney's fees or payment of various marital purposes, such as rent or security deposit or some other appropriate use.
Ryan Kalamaya (6m 5s):
But as I said before, it really comes down to the credibility of the parties, but we do frequently see this. And hopefully that's helpful for you to understand what happens to a party when they claim that they owe a friend or family member particular amount of money. Thanks for listening or watching this short lesson on the Divorce at Altitude podcast. If you found this helpful, please leave a review or share with a friend. It does help for others that are going through or thinking about a divorce in Colorado. If you want to find out more information, please visit Kalamaya dot law or Divorce at Altitude dot com. And that's K a L a M a Y a.law.
Ryan Kalamaya (6m 46s):
Remember, this is educational information. It's not intended to be legal advice. Please consult with an attorney about particulars of your case. We're happy to answer questions. Feel free to give us a call at (970) 315-2365.