A friend 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.

A huge issue in a dissolution of marriage action will be whether the loan is a community debt or if it is an individual debt. This will depend on when the loan was taken and what was done with the loan proceeds. For example, a loan taken during marriage and used to purchase a family home will most likely be considered a community debt.

There are many issues associated with a loan from a family member. The best advice would be to treat the loan as a business transaction and, as such, should be treated as a business transaction if money were borrowed from a bank. A written agreement would have to be signed with a due date and interest rate included. This should be included in the loan documentation.

Speak to a lawyer about how to best memorialize a loan to a family member to purchase a house.