When a ‘Family Loan’ Threatens Your Divorce Settlement: What the Court Will Look At

In the recent landmark Court of Appeal case of Awolowo v Awolowo & Anor [2025] EWCA Civ 641, the court examined a complex “family loan” said to be worth £1.6 million and found that it was not a genuine debt, but part of a scheme designed to strip value out of the family home and reduce the wife’s claims on divorce.

Background

The husband and wife are both Nigerian nationals. They married in 2004 and moved to England in 2009 with their four children, hoping to build a new life here. Shortly before they moved, the husband and his brother signed documents described as a £1.6 million loan in favour of the brother’s company, said to be linked to a hotel project. The husband later said that this money was in fact used to buy the former matrimonial home in Hendon for £1.35 million, which was put into his sole name.

From the wife’s point of view, there was never any mention of a loan. She believed the house had been bought using the husband’s existing wealth from his guesthouse businesses in Nigeria. The relationship broke down in 2015 and she began divorce and financial remedy proceedings in England in 2017. By the time the case reached the senior courts, the Hendon property was the only substantial asset in this country and was worth around £2 million.

Procedural history

After the separation, the alleged “loan” started to feature heavily in the husband’s case. The brother’s company issued proceedings in Nigeria against the husband and his company, claiming the £1.6 million. In 2019, the Nigerian court made a consent judgment for that amount, based on an agreement between the two brothers. The wife was not told about those proceedings and had no chance to have her say. The husband then had that Nigerian judgment recognised in England. He granted a legal charge, and later a final charging order, over the Hendon property in favour of the brother’s company. On paper, this made it look as though the whole value of the house had to go towards the “debt”, leaving no equity to share with the wife. A lower court accepted the debt as genuine and, in January 2023, a notice of the charging order was entered at HM Land Registry. The wife appealed, and the matter ultimately reached the Court of Appeal.

The judgment

The Appellate Courts took a careful, step by step look at what had really happened. The judges reviewed the loan documents and the financial records and considered whether the alleged £1.6 million loan was genuinely owed or should properly be discounted in the family proceedings. It was accepted that the husband had significant resources in 2009 and that the evidence in support of the “loan” was thin and inconsistent. The documents said to prove the loan did not fit together properly and were not supported by bank statements or other reliable, contemporaneous evidence.

The courts held that where a supposed debt to a relative or connected company is relied on to dilute a spouse’s entitlement, those asserting the debt must provide clear and convincing proof that it is real and enforceable. In the absence of such proof, the family court is entitled to treat the “loan” as a sham or, at least, as a liability that should be given little or no weight in the overall financial assessment.

Key principles

The court will not simply accept “loans” to relatives or family owned companies at face value, especially where they appear late in the day and would remove all or most of the equity from the family assets.

A proper paper trail is essential. The court expects to see clear evidence – bank transfers, emails, company accounts, that money was genuinely advanced and is meant to be repaid.

If a claimed debt looks suspicious and would significantly reduce what is available for sharing, the responsibility lies with the person relying on it, and the supposed lender, to prove that it is real. If they cannot do so, the court can draw adverse inferences, disregard the debt and, where appropriate, describe it as a sham.

Foreign court orders are usually respected, but they do not have to be enforced in England if they were agreed privately between family members, without informing the other spouse, or if enforcing them would clearly be unfair and contrary to public policy.

Practical implications

For many people, the family home is the main and sometimes the only significant asset. This line of authority shows that the court will step in where one party tries to put that asset beyond reach by using artificial “family loans”, offshore companies and complex paperwork.

Using its case management and evaluative powers, the family court can look behind charges and judgments that form part of a scheme to defeat a spouse’s claims, and bring the true value of the home back into the pot.

For anyone going through a separation, these decisions offer both a warning and reassurance. They warn that attempts to hide or protect assets by inventing or exaggerating debts to relatives are very risky and may well backfire. At the same time, they reassure those on the receiving end of such tactics that the court can look behind the documents, challenge questionable debts and foreign orders, and work towards a fair outcome that reflects the real wealth built up during the relationship.

At Whiterose Blackmans Solicitors, our specialist family law team can guide you through situations like this with clear, practical advice.

We can review any alleged “family loans” or sudden debts, analyse the paperwork, and advise you on whether they can be challenged so that the true value of the family assets is taken into account. Our priority is to protect your interests and to work with you towards a fair and realistic financial settlement for you and your family.

If you would like more information about the issues raised in this article or any aspect of family law, please contact Dr Ruby Bhatti, Head of Family Law Department on 0113 216 5507 or email Ruby@whiteroseblackmans.co.uk.