Why Related-Party Loans Matter in Divorce Settlements

Dividing assets during a divorce can be tricky, especially when related-party loans are involved. These loans, often tied to businesses, are important to consider because they affect the value of the property pool being divided.

A related-party loan can be either an asset or a liability. If it’s an asset, it increases the value of the business, which means the person keeping the business owes more to the other party in the settlement. On the other hand, if it’s a liability, the person taking on the debt after the divorce needs to have it counted as part of their share of the property pool. Ignoring these loans can make the division of assets unfair.

Another issue is that joint loans often need to be reassigned to one person after the divorce. If this isn’t done, it can create confusion and complications later. Tax implications also need to be addressed, as they can have a big financial impact.

Sometimes, experts evaluating the business might leave out related-party loans to keep things simple. However, this approach is risky. It can lead to unfair settlements, especially when other business owners are involved, and it may create legal or financial problems for the expert down the line.

If you’re a lawyer handling a divorce case with related-party loans, make sure they’re included in the business valuation and that their impact on assets and debts is clear. For experts, it’s essential to carefully explain these loans’ effects and ensure they’re handled properly.

By addressing related-party loans thoughtfully, divorcing couples can achieve a fairer and smoother settlement process.