Is a loan agreement between spouses valid?

01 Can a loan relationship arise between spouses?

Chapter 12 of the contract part of the Civil Code, on loan contracts, imposes no restriction on such contracts beyond the prohibition of usury and the requirement that the interest charged not breach the relevant state rules.

Where spouses agree that one of them shall borrow from the joint property of the two, and that the money be lent to one of them to carry on a personal business or for personal affairs, the arrangement differs from a loan between ordinary natural persons only in that the source of the funds is property held in common, and in no other essential respect.

The judicial interpretation provides that, during the marriage, a loan relationship may arise between spouses where certain conditions are met.

The text of the provisions

Interpretation (I) of the Supreme People's Court on the Application of the Book on Marriage and Family of the Civil Code of the People's Republic of China

Article 82 Where spouses conclude a loan agreement under which joint property is lent to one of them to carry on a personal business or for other personal affairs, the agreement shall be regarded as an agreed disposal of joint property by the two, and on divorce the matter may be dealt with in accordance with the agreement.

02 How the lender asserts the right

A loan agreement between spouses falls within that interpretation and may be dealt with according to its terms, but certain conditions must be met.

(1) The money lent comes from joint property

One spouse can borrow joint property from the other only where joint property exists; otherwise the ordinary rules on lending are enough to resolve the relationship between them.

In China the matrimonial property regime is either statutory or agreed. Under an agreed regime the spouses decide that property acquired during the marriage, and property held separately before it, is to belong to each of them separately, to both in common, or partly one way and partly the other. Where there is no agreement, or the agreement is unclear, the statutory regime applies.

The source of the funds is determined according to the regime in question. Under the statutory regime, unless one spouse proves that the money was his or her separate property, it is presumed to come from joint property. Under an agreed regime, unless it is proved that the money was joint property, it is presumed to come from the separate property of one spouse.

(2) The money is used for one spouse's personal business or other personal affairs

Whether a loan was used for a personal business may generally be judged by the following:

whether the parties expressly agreed that the business was to be run entirely by one of them;

whether in practice the business was managed entirely by one of them, and whether the other spouse or other family members took part in managing it;

where the business entity invested in is a legal person, whether its property is mixed with the joint property of the spouses.

Whether the money was used for personal affairs can be judged by elimination, that is, by asking whether the use was a legal duty the spouses owe, such as supporting parents or bringing up children, or an affair undertaken for their life together, such as renovating the house they live in.

Affairs other than the legal duties the spouses owe and the affairs of family life may generally be treated as the personal affairs of one spouse.

(3) The loan agreement states the use of the money, the manner of repayment and the time for repayment

The interpretation also provides that on divorce the matter "may", not "shall", be dealt with in accordance with the original agreement. A court, conscious that during a marriage the spouses may not draw clear lines around the use, the income and the disposal of property, will not simply follow the agreement but will deal with the matter by taking account of the matrimonial property regime, joint property, joint debts and anything else that may affect the division.

The text of the provisions

Civil Code of the People's Republic of China

Article 1062 The following property acquired by spouses during the marriage is joint property, owned by them in common:

(1) wages, bonuses and remuneration for services;

(2) income from production, business and investment;

(3) income from intellectual property;

(4) property inherited or received as a gift, except as provided in Article 1063(3) of this Law;

(5) other property that ought to be held in common.

Spouses have equal rights to dispose of joint property.

Article 1063 The following property is the separate property of one spouse:

(1) property owned by one spouse before the marriage;

(2) compensation or indemnity received by one spouse for personal injury;

(3) property that a will or a contract of gift provides is to belong to one spouse alone;

(4) articles of daily use intended for the personal use of one spouse;

(5) other property that ought to belong to one spouse.

Article 1065 A man and a woman may agree that property acquired during the marriage, and property held before it, shall belong to each of them separately, to both in common, or partly one way and partly the other. The agreement shall be in writing. Where there is no agreement, or the agreement is unclear, Articles 1062 and 1063 of this Law apply.

Interpretation (I) of the Supreme People's Court on the Application of the Book on Marriage and Family of the Civil Code of the People's Republic of China

Article 82 Where spouses conclude a loan agreement under which joint property is lent to one of them to carry on a personal business or for other personal affairs, the agreement shall be regarded as an agreed disposal of joint property by the two, and on divorce the matter may be dealt with in accordance with the agreement.