Divorce and Debt – Who Takes Responsibility?

In the same way that marital assets must be considered during a divorce or civil partnership dissolution, so too must any debts.
The debts and liabilities of each party are usually added up and then deducted from the total family assets. The net assets which remain will be shared depending on circumstances.
But in in certain situations the provenance of the liabilities and the use to which the funds were put become relevant
and the court will look more closely at the debts. It will on occasion seek to ascertain if the debts were used for the benefit of both partners – for example to pay for home improvements, holidays or a family car – or if they were for individual benefit only – perhaps for cosmetic surgery, to fund an expensive hobby or run up by gambling.
The timing of when the debts were incurred (before, during or after marriage) is also relevant.
As a rule, the court is far more likely to divide responsibility for a debt which was incurred during the marriage So if one party entered the relationship with large debts, then he or she would generally remain responsible for those – unless other circumstances suggested that the responsibility should be shared (such as a very long marriage).
Dividing a property in negative equity
What happens with any marital property (whether it is in negative equity or not) will firstly depend if it is practicable for either party to remain in the house. Homes are generally regarded as joint marital property, regardless of whose name they are in, so if one party does indeed wish to remain in the home they will usually need to consider buying out the other party’s interest in the property. To do this, they will either need to raise the cash or find out if the mortgage lender is willing to let them take over the mortgage alone.
To ascertain the market value of the property, valuations from three different estate agents should be obtained to arrive at a fair price. This will tell you what each party’s share in the property is worth. If value of the property is greater than the mortgage, the spouse who wishes to remain in the property will need to pay the other party for their share.
If, on the other hand, the property is in negative equity, the spouse who is being bought out will need to pay the difference to the mortgage lender, to ensure their share of the mortgage is paid off.
If the property is to be sold, and the mortgage cannot be repaid with other marital assets, the remaining debt will be divided between the two parties.
If you can’t afford the repayments
If you cannot afford the monthly payments on your debts, you may contact your creditors to negotiate smaller repayments or re-payment holidays. For joint debts, financial institutions will usually lean heaviest on the spouse with the most ability to pay.
If you are really struggling with debts, other options to consider include seeking an Individual Voluntary Agreement (IVA) or declaring yourself bankrupt. An IVA is a legally-binding agreement that allows you to repay your creditors by making one affordable monthly payment. The agreement usually lasts five or six years, and at the end of this time your remaining debt is written off. This decision very much depends on your personal circumstances and you should seek specialist advice from an insolvency specialist before deciding on any such course of action.
Andit is important to remember that an IVA or bankruptcy will not mitigate the requirement to pay other court ordered amounts to your spouse such as child or spousal maintenance.
Always seek expert advice
Debt and divorce is a very complex area, to gain a greater understanding of your situation it is best to seek specialist advice. Our Children and Family Team is expert in all aspects of divorce and also offers a mediation service, which can help to decide who is responsible for debts before going to court.

In the same way that marital assets must be considered during a divorce or civil partnership dissolution, so too must any debts.

The debts and liabilities of each party are usually added up and then deducted from the total family assets. The net assets which remain will be shared depending on circumstances.

But in in certain situations the provenance of the liabilities and the use to which the funds were put become relevant

and the court will look more closely at the debts. It will on occasion seek to ascertain if the debts were used for the benefit of both partners – for example to pay for home improvements, holidays or a family car – or if they were for individual benefit only – perhaps for cosmetic surgery, to fund an expensive hobby or run up by gambling.

The timing of when the debts were incurred (before, during or after marriage) is also relevant.

As a rule, the court is far more likely to divide responsibility for a debt which was incurred during the marriage So if one party entered the relationship with large debts, then he or she would generally remain responsible for those – unless other circumstances suggested that the responsibility should be shared (such as a very long marriage).
Dividing a property in negative equity

What happens with any marital property (whether it is in negative equity or not) will firstly depend if it is practicable for either party to remain in the house. Homes are generally regarded as joint marital property, regardless of whose name they are in, so if one party does indeed wish to remain in the home they will usually need to consider buying out the other party’s interest in the property. To do this, they will either need to raise the cash or find out if the mortgage lender is willing to let them take over the mortgage alone.

To ascertain the market value of the property, valuations from three different estate agents should be obtained to arrive at a fair price. This will tell you what each party’s share in the property is worth. If value of the property is greater than the mortgage, the spouse who wishes to remain in the property will need to pay the other party for their share.

If, on the other hand, the property is in negative equity, the spouse who is being bought out will need to pay the difference to the mortgage lender, to ensure their share of the mortgage is paid off.

If the property is to be sold, and the mortgage cannot be repaid with other marital assets, the remaining debt will be divided between the two parties.
If you can’t afford the repayments

If you cannot afford the monthly payments on your debts, you may contact your creditors to negotiate smaller repayments or re-payment holidays. For joint debts, financial institutions will usually lean heaviest on the spouse with the most ability to pay.

If you are really struggling with debts, other options to consider include seeking an Individual Voluntary Agreement (IVA) or declaring yourself bankrupt. An IVA is a legally-binding agreement that allows you to repay your creditors by making one affordable monthly payment. The agreement usually lasts five or six years, and at the end of this time your remaining debt is written off. This decision very much depends on your personal circumstances and you should seek specialist advice from an insolvency specialist before deciding on any such course of action.

Andit is important to remember that an IVA or bankruptcy will not mitigate the requirement to pay other court ordered amounts to your spouse such as child or spousal maintenance.
Always seek expert advice

Debt and divorce is a very complex area, to gain a greater understanding of your situation it is best to seek specialist advice. Our Children and Family Team is expert in all aspects of divorce and also offers a mediation service, which can help to decide who is responsible for debts before going to court.

Contact Jane McDonagh
jane.mcdonagh@smab.co.uk