Debt on divorce
24 January 2017
The growing trend for elaborate weddings has caused an increase in couples getting into debt before the marriage has even begun. If the marriage then breaks down then a dispute may well arise between the couple on separation over who is liable for the debt.
Debt is a growing problem in modern society. The Office of National Statistics has also released figures that unsecured debt has reached an unprecedented £349bn as at the end of September 2016. With levels of student debt increasing, these figures seem set to go up!
The growing trend for elaborate weddings has caused an increase in couples getting into debt before the marriage has even begun. Historically, the bride’s family paid for the cost of a wedding. However with the average cost of a wedding reaching £24,000 couples are now turning to credit cards and bank loans to pay for their special day rather than the bank of mum and dad. Often these debts are not taken out jointly. If the marriage then breaks down and there is no agreement on who is liable (or no provision in a pre-nuptial agreement), then a dispute may well arise between the couple on separation over who is liable for the debt.
Debts are now also incurred to bridge the gap between income and household outgoings or to finance luxuries such as a new car or holiday abroad. We find that often debt is taken on without the other spouse knowing that it has been taken out which then comes as a surprise when the full extent of the matrimonial finances are disclosed.
The way a debt is dealt with on divorce may depend upon how that debt was incurred. If a debt was incurred for the benefit of the family, such as living expenses or a family holiday, then it is possible that the court would consider this a joint debt – whether it is incurred individually or not. Ultimately the settlement will have to work around the debt, if it is not paid off from other assets or factor into the settlement the responsibility for discharging a debt if it can be repaid.
Debt comes in various forms – mortgages, credit cards, store cards, and bank loans being the most common. How the debt is treated legally depends entirely on what type of debt it is. Mortgages and loans in joint names will create a ‘joint and several’ liability which means that all who signed up are responsible for the entirety of the debt. If one does not pay it the other must and the lender can sue either or both of them. Credit cards are different as there is no such thing as a joint credit card and the main cardholder is responsible for the entirety of the debt.
When going through a divorce, on separating your matrimonial finances you will also need to deal with any debts incurred during the marriage. If this is a joint debt or you are the main cardholder on a credit card, you should consider putting restrictions on the account to stop any additional debt being incurred, whether maliciously or not. You should review your debts to see what is affordable to pay and whether re-financing needs to be considered, or whether it is possible to have a name removed.
Throughout the separation or divorce, keep your lender informed so if anything does happen they are already aware of the situation. If you do believe that a debt in your sole name was incurred for the benefit of the marriage, any evidence of what the monies were spent on would be useful to your divorce solicitor.
Whether considering separation or divorce, the family solicitors at Birketts consider with you all the different ways of resolving your differences to help you reach an agreement either before or during marriage. Each of our East Anglia offices has an in-house collaborative solicitor so we can advise on the most suitable option for our clients. We can offer a range of options including financial mediation.
For further information or to book an appointment, please contact a member of Birketts’ Family Law Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2017.