What happens to debts when you divorce?
All too often top London divorce solicitors focus on how the family court will divide family assets on divorce. However, what happens if there is debt to sort out? You would think that the simple solution would be that the assets are added up, then take off the amount of the debt and divide the remaining assets in half. The best London divorce solicitors will tell you that many families’ financial and personal circumstances are too complicated for the family court to take that approach to sorting out debts on divorce.
In some family situations, questions need answering about debt and divorce such as:
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Is the debt in the joint names of the husband or wife or is it in the sole name of the husband or wife;
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Is the debt “family debt” even if it was taken out in the sole name of the husband or wife;
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Is the debt post separation debt and, if so, should this make a difference to how the debt is treated by the court;
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Was the debt incurred before the marriage or before the period of cohabitation and, if so, should this make a difference to how the debt is treated by the court;
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Is the debt a “soft loan”, or in other words, is it money that is owed to a family member;
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If the debt is a joint debt, will the lender agree to release either the husband or the wife from the debt;
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Is the debt quantifiable or is it a future liability, for example if a HMRC investigation establishes a tax liability or if a court litigation case is lost and an award made against a spouse;
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If the debt is repaid, will there be sufficient net assets to meet a husband and wife's reasonable needs from the remaining assets;
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If the debt is a mortgage liability on the family home then is the property in negative equity;
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Is either the husband or wife paying off the debt on a regular basis? If the debt is not being paid off then has this affected the credit rating of either the husband or wife?
The list of questions about debt and divorce is not exhaustive and the top London divorce solicitors will tell you that the relevance of the questions depend on the personal and financial circumstances of the husband and wife.
How can OTS Solicitors help?
If you need expert legal advice on the relevance of debt to your financial settlement or you require representation in financial court proceedings then the divorce and family law team at OTS Solicitors can help you.
For a confidential discussion on how OTS Solicitors can help you please call us on 0203 959 9123.
Is the debt family debt?
Top London divorce solicitors refer to debt as “matrimonial debt” or “family debt” or “non-matrimonial debt”. They do not mean that if the debt is a joint debt or loan that the debt is “matrimonial” or “family debt” or if a debt is in a husband or wife's sole name that it is “non-matrimonial debt”.
When the family court and the best London divorce solicitors look at debt and work out if it is family debt or not they look at the nature of the debt and why it was incurred and for whose benefit.
If the debt was incurred for something that the family enjoyed during the marriage, such as a holiday or home improvements, the court is likely to say the debt is family debt and a joint responsibility, irrespective of whose name the debt is held in.
The treatment of debt on divorce can get tricky. This is especially the case where the debt was taken out for family expenditure without the other spouse’s knowledge. For example, if a husband took out a credit card to pay for family holidays and clothes for the children the court is likely to treat the debt as family debt even if the debt is in the husband’s name and the wife did not agree with all the spending. However, if a credit card was used to buy jewellery for a new partner or furniture for new accommodation then the debt will be viewed as non-family debt.
The court will look at whether there are sufficient assets to pay off the family debt before the division of the remaining assets between the husband and wife. If there are insufficient assets to do that and meet the needs of the husband and wife then one option is for the loan to continue to be paid by one spouse and to look at how the loan payments should affect the amount of spousal maintenance that a spouse either pays or receives. The length of the loan may also effect the length of time that spousal maintenance has to be paid for or spousal maintenance can be adjusted upwards or downwards once the loan has been paid off.
Debt and financial disclosure
Whether you have top London divorce solicitors negotiating a financial settlement for you, you are attending family mediation, or you are asking the court to make a financial court order, it is vital that all debt is disclosed.
Some people think it is only necessary to disclose joint debt or debt that they class as “family debt”. That is not the case. All debt should be disclosed. Debt can include overdrafts and loans, credit and store cards, gambling debts, money owed to family, car loans and hire purchase commitments.
As well as providing details of the amount of the debt, it is also important to disclose how much is repayable each month and the debt repayment date. Without that additional information, financial settlement options cannot be properly explored.
What happens to non-family debt in divorce proceedings?
If you can establish that a spouse incurred debt solely for their benefit then the best London divorce solicitors can argue that the debt is “non-matrimonial” and should be “added back” to the assets of the person who incurred the debt.
Normally the divorce court will only add back non-family debt to the family assets if the debt expenditure is classed as wanton and reckless.
Non-family debt can be a very difficult topic to resolve because tensions can run high if a spouse thinks that their trust has been breached. However, top London divorce solicitors will advise on the importance of weighing up the extra legal costs involved in analysing the debt and the benefits to be gained from pursuing the legal argument.
The best London divorce solicitors will help you stand back from the debt situation to work out if it is in your financial interests to pursue an argument in court about the debt. It will all depend on the amount involved, and how ‘’reckless and wanton ‘’ the expenditure was and the potential additional legal costs.