Dealing with debts when you divorce or separate
When married couples divorce or cohabiting partners separate their first concerns will probably be about child arrangements or how to divide their assets.
Before long, however, they may have to tackle an equally difficult issue: how to settle their debts, some of which might be in joint names. Who is liable to pay? Could you end up being held responsible for your partner’s debts, even if you knew nothing about them?
The law can be complex and to make things even more difficult, different rules may apply for married and cohabiting couples.
Debts in one person’s name
As you might imagine, you will be liable for debts that are in your name only, but not for those in your partner’s name only. However, debts in one person’s name that were used for the benefit of both partners in a marriage may be deducted from the couple’s joint assets before reaching a financial settlement.
This would not apply to cohabiting couples.
Also remember that if you acted as a guarantor for a loan taken out by your partner, you will be responsible for repaying it if they default.
Debts in joint names
Things get a little more complicated for debts in both your names. You will be held jointly responsible and if you’re married, anything you owe together will usually be added up and deducted from the marital assets. The remainder will then be shared as decided in the financial settlement.
If you are not married, you will have less protection. For example, you may be held jointly responsible for a loan used to carry out expensive home improvements yet have no claim to a share in the home if it’s in your partner’s name only.
In some cases, whether married or not, you could find yourself liable for debts such as council tax for which you have “joint and several” responsibility. If your partner cannot pay their share, your local authority may chase you for the full amount.
What can the court do?
It’s not unusual for couples to disagree about responsibility for debts and they may have to take legal action to determine liability. In these circumstances, the court will look at the debt and consider how it arose, whether the partners benefited jointly or individually and then decide who should bear the burden of repayment.
For example, if the debt was used to pay for school fees or a family holiday then it’s likely that the court would rule that both partners are jointly liable.
However, if one partner incurred the debt largely for his or her individual benefit then the court may decide that they should bear most or all of the liability. This could apply in cases where one partner has spent lavishly on a hobby, bought an expensive car for their own use or run up gambling debts.
The courts are more likely to order that liability should be shared for debts incurred during the marriage than before the relationship began, although this might not apply in exceptional circumstances, such as in a very long marriage.
Differences for married and unmarried relationships
Cohabiting couples face extra challenges when separating, not least because, as they don’t have to go through the legal process of divorce, they’re less likely to use a solicitor and so may not be aware of the legal pitfalls.
In marriage, the family home is generally regarded as a family asset even if it’s not in both names. This is not the case for cohabiting couples. It means you have no right to stay there if your name is not on the deeds and your partner tells you to leave, even if you have lived there for several years.
On the other hand, you will have no responsibility for paying off negative equity if that’s an issue, nor debts for things like home improvements even though you may have benefited from them, unless the contract is in your name.
Deciding responsibility for debts can be complex whether you are married or cohabiting and so it is always advisable to seek advice from your solicitor.
If you would like more information or advice about the issues raised in this article, or any aspect of family law please contact our expert legal team on 0208 004 0065, by email at email@example.com or using the form below.
The contents of this article is general information only. The information in this article is not legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should obtain independent expert advice from qualified solicitors such as those within our firm.