When a couple gets divorced, there is often an amount of debt in either or both of their names that needs to be sorted out as part of the legal untangling of the former relationship. Dividing debt in divorce is not always straightforward. The process starts by working out who is responsible for the various outstanding financial obligations that exist. Then, discussions can move on to who pays debt in divorce, which types of debt are assigned to each person and how much both parties have to pay.
As a rule, any debts incurred during the marriage (also known as matrimonial debts) are considered joint obligations regardless of whose name is actually on the account. However, debts built up before the marriage or taken out after the couple has formally separated are considered the sole responsibility of the person who incurred them. The only exception to this is when the debt is reasonably considered to have benefited the marriage.
Divorce debt responsibilities
Family courts tend to prefer to settle on an equitable (not necessarily equal) division of marital debts when working out how to split debt in divorce. The final decisions take into account factors such as the purpose of the debt and each spouse’s current financial situation, individual debts and future financial obligations.
Other considerations include the length of the marriage or civil partnership and how divorce and credit scores will be affected by the final decision. Unpaid debts, even if assigned to only one spouse during divorce proceedings, can negatively impact the credit scores of both parties in the future. This is where dividing debt in divorce has longer term repercussions if not handled professionally.
Specific scenarios for dividing debt in divorce
There are several types of debt that regularly come up in divorce settlements and proceedings. These include mortgages, which are typically considered a joint marital debt, even if there is only one person’s name on the account. Arrangements around paying off mortgage debts can vary depending on the amount of the debt, how long there is left to pay off the mortgage. It is also relevant to know whether or not one or both parties will continue living in the mortgaged property, post-split, whether it will be sold to a third party, or if one person intends to buy the other out and live there alone or with dependents.
Credit cards and personal loans are also common factors to consider when dividing debt in divorce. These can be either marital debts if they have been used to buy or fund joint assets or expenses. The credit card or loan’s purpose must be carefully scrutinised to ascertain whether or not they have been used to benefit both parties from the union or just one.
How to go about dividing debt in divorce
Aa with any aspect of post-split negotiations, honesty and transparency is key. Do not keep any debts hidden, or provide false accounts. This will delay any agreements and cause confusion and possible financial hardship further down the line. Consult with an accountant and divorce solicitor at an early stage in proceedings. This will help ensure you understand your rights and responsibilities regarding any division of debts.
Keep calm and maintain and open mind during negotiations in order to achieve the best outcome for everyone – especially any children or dependents from the marriage or civil partnership. Remember that you may still be legally liable for a debt assigned to your former partner, and that their failure to pay could affect your credit rating. Keep detailed records of all financial dealings and discussions so that you have a clear picture of what you both owe, going forward.