Dealing with Debt in Divorce or Separation

Divorce and debt sounds a depressing topic. However, it is a subject that has to be discussed by many couples who are thinking about separating or getting divorced.

Putting off a separation or divorce because you are in debt is rarely a good idea unless you think that the marriage still has a chance of working. If you think your judgment is impaired by the debt, it is sensible to take advice on your options.

Debt and divorce proceedings

Many Whitefield divorce solicitors find that debt is one of the major reasons behind the decision to start divorce proceedings. For example:

• A spouse may have hidden spending from their partner so they have lost trust in them;
• Family debt has arisen and because of financial pressures, arguments have escalated.

Debt issues can be included in a divorce petition based on a spouse’s unreasonable behaviour. There is often a reluctance to agree to a divorce if allegations are made about debt and spending.

When a couple agree that a marriage is at an end the simplest solution is for the respondent to the divorce proceedings to agree to the divorce and to say that they do not accept the debt allegations in the divorce petition. That way the husband and wife avoid the cost of contested divorce proceedings. However, the respondent to the divorce petition can argue his or her case in any later financial court proceedings.

Debt and financial disclosure

If you are negotiating a financial settlement or asking the court to make a financial court order, it is vital that all debt is disclosed. In financial court proceedings, financial disclosure involves giving information about assets and debts.

Debt can include joint debt and individual borrowings. Debt is not just overdrafts and loans but includes credit and store cards, gambling debts, money owed to family or car loans and hire purchase commitments.

As well as providing details of the debt, it is important to disclose how much is repayable each month and the debt repayment date. Without that additional information, financial settlement options cannot be explored.

Am I liable for the debt in my spouse’s name?

If your spouse took out loans or debt in his or her name then the person or organization owed the money cannot pursue you for recovery of the debt unless it is legally assigned to you.

However, in family court proceedings the judge can take into account debt in one spouse’s sole name. The court may have to decide if the debt is ‘’family debt’’ or ‘’non-family debt’’. For example, if a wife took out a credit card to pay for family holidays and clothes for the children the court is likely to class the loan as family debt even if the husband did not agree with all the spending. However, if a loan was used to buy presents for a new partner or furniture for a new house it is likely that it would be viewed as non-family debt.

What happens to non-family debt in divorce and financial court proceedings?

If you can establish that a spouse has incurred debt purely for their benefit then a divorce solicitor can argue that the debt 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 asset pot if the expenditure was wanton and reckless.

Non-family debt can be a highly emotive topic. However, it is always important to weigh up the extra legal costs involved in analysing the debt and the benefits to be gained from pursuing the legal argument.

Your divorce solicitor should help you stand back from the situation to work out if it is in your financial interests to pursue the argument. It will all depend on the amount involved, how ‘’reckless ‘’ the expenditure was and the potential additional legal costs.

For help with divorce proceedings or financial settlement solutions and financial court orders please contact our divorce lawyers today.