How are debts shared in a divorce?

In a divorce, courts consider all debts acquired during the marriage (marital debts) to be shared by both spouses regardless of whose name they are under. Debts from before the marriage can also be considered marital debts if the finances were merged during the marriage.

Contents:

• Matrimonial Debt
• Individual Debt
• Types of debt
• Debt after divorce

Debt and divorce

The financial aspects of a divorce are often the area that is most complicated to resolve. It is generally understood that the assets will need to be divided between the couple, but it also has to be decided how the matrimonial debts will be shared. This can be the case even where the debts are in one name as opposed to joint names. Even couples that have a lot of assets can also have significant debts and what happens to these after the divorce is something that needs to be determined. 
What debts are shared?

Normally individuals are responsible for debts that are in their own name. However, if a party can show that it is in fact a matrimonial debt, then both parties may be responsible, regardless of whether it is in a sole name. The court will need to determine what is matrimonial debt that needs to be covered by both parties and what is individual debt that will fall solely to that individual. 

It is important to note that the court dealing with the divorce will not be able to alter who is responsible for the debt nor does it have the ability to change whose name the debt is in. They can ensure that the assets are divided to cover the repayment of a debt by one of the parties.

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WHat is Matrimonial debt?

Matrimonial debt is something that both parties have benefited from, regardless of whose name the debt is in. This includes:

• Joint debt taken out in both parties’ names.
• Debt in one name but for the benefit of both parties. For example, a loan for a holiday, family car or home improvement is likely to be considered a joint debt, even if it has been secured in just one name.

what is Individual debt?

Individual debt benefits just one of the parties and the courts may disregard these when determining how debts will be shared. Again the debt itself needs to be examined- it may be that a debt is in both names but is actually for the benefit of just one party. However, the courts will often consider all debts to be matrimonial unless there are compelling reasons to decide otherwise.

what about Debts that pre-date the marriage?

Debts acquired before the marriage may be regarded as matrimonial debt, particularly in a longer marriage where finances have merged. If the debt can be shown to be separate and distinct from the rest of the couple’s finances, then the court may determine that it is not a matrimonial debt.

Types of debts:

Mortgages

The marital home is likely to be the biggest asset of a marriage and often the mortgage attached to it is the biggest debt. If the house is to be sold, then the mortgage can be deducted from the sale and the remaining amount added to the overall assets for distribution. Where one party remains in the home, there are various issues such as how the equity belonging to the party no longer living there will be accessed and who will make the mortgage repayments. Similarly, if there is negative equity in the house, the couple will need to determine how this is dealt with. The mortgage company will need to be consulted to see if they are prepared to change from a joint to sole mortgage. Otherwise, an agreement can be put in place stating that the party remaining in the house will cover the payments and releasing the other party from any liability in relation to the mortgage repayments. 

Other debts 

As well as the mortgage, the parties may have other debts that need to be considered. This can be credit or store cards, car finance, bank loans or other unsecured debts. Again the named individual will be responsible for their repayment, but the courts will examine all of these to determine who is practically liable.

 
What if my ex creates more debt during the divorce?

Reasonable debts that are accumulated before the divorce is finalised can become part of the matrimonial finances and added to the overall “pot”. Usually one party will leave the family home and will need to find other accommodation. If this results in some form of debt, the courts are likely to find this a reasonable expense (presuming the accommodation is relative to the circumstances of the case).

WHAT ABOUT DEBT THAT ARISES AFTER THE DIVORCE?

If at all possible, getting a clean break settlement means that neither party is financially tied to the other following divorce. This is important not just for the joint assets, but also for any debts. Having an agreement in place detailing who is responsible for each particular debt can offer protection in the future.
One situation that can be problematic is where parties remain joint tenants in relation to the family home. If one party runs up large debts that cannot be paid, then the creditors will try and get their money back from other methods. Where the parties still own the home in joint names then they may demand the outstanding debt from that party’s share in the house.