بِسۡمِ اللهِ الرَّحۡمٰنِ الرَّحِيۡمِ
"Indeed there is a fitnah (trial) for every Ummah, and the fitnah (trial) for my Ummah is wealth."
"إِنَّ لِكُلِّ أُمَّةٍ فِتْنَةً وَفِتْنَةُ أُمَّتِي الْمَالُ "
As property prices continue to rise, many young people rely on financial assistance from parents or other relatives to purchase a home, often in the form of a gift or a loan without documentaion.
Another source of disputes arises in family inheritance cases when a constructive trust is established due to evidence that one party holds property or assets in a way that suggests unfairness or breach of an implied promise. For example, if an elderly parent transfers the title of a family home to one child—often the one providing care—while verbally assuring that all children will receive an equal share of the inheritance, a court may infer a constructive trust to uphold the parent’s intended distribution.
In such cases, the court recognises a constructive trust, treating the property as if it is held in trust for all the intended beneficiaries. To do this, the court considers the intentions of the parties, the circumstances surrounding the transfer, and any evidence of the parent’s wishes, aiming to prevent unjust enrichment and ensure that the parent's intentions are respected.
The distinction between gifts and loans often arises in legal disputes, particularly during divorce proceedings. For example, in a divorce, one party may assert that money from their family was a loan that must be repaid before dividing marital assets, while the other party argues it was a gift with no repayment obligation. Family law courts must then determine whether the money in question constitutes a gift or a loan, with a critical factor being whether the donor intended to give the money away without expecting repayment.
When courts determine that the money was a loan, it must be classified as either a "hard" loan or a "soft" loan. A "hard" loan resembles a commercial loan, involving a clear, enforceable debt obligation, often with formal terms such as interest rates, a written agreement, and a prompt demand for repayment. In contrast, a "soft" loan is more informal, typically between friends or family, with little or no interest, and may lack a written agreement or evidence of enforcement efforts.
Factors that may indicate a "hard" loan include obligations to a finance company, formal commercial terms, a written agreement, or active efforts to recover the debt, such as litigation. Conversely, factors suggesting a "soft" loan include informal agreements with family or friends, lack of commercial terms, absence of a written demand for payment, or delays in seeking repayment.
Determining whether a loan is "hard" or "soft" depends on the specific circumstances of each case. The Courts will decide based on available evidence and what appears fair and reasonable.
The importance of documenting agreements in writing is encouraged in Islam (Quran 2:282). The repayments of debts was emphasised by the Prophet Muḥammad (
) himself.
“In matters of debt. By Him in whose hand Muhammad’s soul is, if a man were to be killed in God’s path then come to life, be killed again in God’s path then come to life, and be killed once more in God’s path then come to life owing a debt, he would not enter paradise till his debt was paid.” (Ahmad transmitted it, Mishkat al-Masabih 2929).
'Amr b. al-'As (
) narrated: The Messenger of Allāh (ﷺ) said, “All the sins of a shahid (martyr) are forgiven except debt.” (Muslim 1886a)
Abū Hurayrah () narrated : The Messenger of Allāh (ﷺ) said, “A believer’s soul remains in suspense until all his debts are paid off.” (Amhad, Tirmidhī and Ibn Mājah)
If you want to get it right get it written.
A. Hussain Sept. 2024