The emotional toil of going through divorce proceedings can be compounded even more when debt is involved.
Joint debts are considered marital debts in the same way as the family home is considered a joint asset. New research shows that 19% of Brits often argue with their partner about money, and that’s a trend that carries all the way through divorce proceedings.
That’s why this guide covers what happens to debts and how they’re divided to give you the extra clarity needed to handle the challenges of going through a divorce.
Understanding matrimonial debt
There’s a distinction between matrimonial debt and individual debt. The former is considered to be any form of debt taken out jointly or debt taken out for the benefit of the family, even if it’s only in one person’s name.
For example, if you took out a loan in your name to renovate the family home or to fund a joint holiday, this would be matrimonial debt, even if your ex-spouse’s name doesn’t appear on the agreement. It’s especially problematic here in the UK because 39% of young partners keep money separate, which is the highest rate in Europe.
How is debt divided in divorce?
The initial challenge is unpicking what counts as matrimonial debt. Generally, anything taken out jointly or debt taken out separately to meet family obligations will be included when dividing up the assets. It’s why the median total assets divorcing couples own is just £135,000.
Debt can be divided in any number of ways. The preferred option is negotiating with your spouse, either directly or via mediation. Any agreement should then be finalised through a legally binding financial consent order to protect against future claims.
If you can’t reach an agreement, you can apply to the Family Court for a financial order. In this scenario, a judge will make the final decision. Remember, the court is not interested in what’s an equal split, but what’s fair.
Are you liable for your ex-partner’s debt if you divorce?
Debts don’t disappear just because you get a divorce. The legal responsibility to pay off your debts remains valid. You’re liable for all debts that are considered joint, and lenders can pursue either you or your ex-spouse for the money, even if one of you has moved out of the family home.
On the other hand, individual debts aren’t factored into a divorce, meaning the person who took on that debt remains 100% liable for paying it off. Examples of individual debts could include student loans you took out before you married, a personal credit card used to fund a private hobby, or even loans taken out for things like gambling.
What the Court considers in divorce regarding debt
The Court is only interested in achieving a fair outcome, and that doesn’t mean an automatic 50/50 split of assets and liabilities. The Court will look to balance matrimonial assets and debts to achieve a fair settlement. In practice, the Family Court will consider:
- The welfare of any child of the family under the age of 18 or in full time education
- The income, earning capacity, property and financial resources of both parties
- The financial needs of each party
- The standard of living enjoyed during the marriage
- The age of each person and the duration of the marriage
- The physical/mental health of each party
- The contributions which each party has made
- In exceptional circumstances the conduct of each party
- Any benefits which a party may lose the chance of acquiring such as pensions.
Paying off debts together after a divorce
Divorces don’t change loan agreements. In the case of a joint debt, you’re what’s known as “jointly and severally liable”, which means your lender can pursue either party for the full amount.
It’s why, after a divorce, couples might continue regular debt repayments together until the debt is repaid or negotiate who will take sole responsibility for the debt with that party giving an indemnity to the other party to ensure the debt is paid.
Of course, this might be offset by other parts of the divorce agreement or you may decide to opt for a one-time lump-sum of cash to cover debt repayments and simplify matters.
What to do if your ex-partner won’t pay their debts after a divorce
In the case of a joint debt with both your names on the agreement, you still bear full responsibility for paying off that debt. Generally, you might opt to:
- Contact the lender to explain the situation and get a notice of disassociation to separate your credit files or make a separate agreement.
- Seek legal advice from an experienced solicitor.
- Negotiate with your spouse.
- Enforce a financial order through the court if an order has already been made by the Family Court which provides for your ex partner to pay that debt.
What happens to debts incurred before marriage in a divorce?
Pre-marital debts usually stay with the individual because they’re not considered to be matrimonial debts as they were not incurred for the benefit of the family. However, there can be exceptions to this rule, such as if the debt subsequently did benefit the family. For example, if the house owned, subject to a mortgage, in one person’s name became the family home, or if a car subject to a loan in one person’s name was then used by both parties.
We understand this can get extremely complicated, but the wrong move during divorce proceedings could damage your financial situation for years to come. The answer is to seek professional advice from an experienced legal professional.
At VM Family Law, our expert divorce solicitors are ready to unravel the situation, explain your rights, and ensure a fair settlement that’s legally binding. To learn more about what we can do for you, or to get confidential advice for your upcoming divorce, contact us today.t’s why solicitors advise all divorcing couples to review their wills and update accordingly.