It’s never easy when a relationship comes to an end. Alongside the emotional distress and sense of loss, there’s also often a need to sort out a range of practical matters such as dividing assets, reorganising living arrangements, and adjusting to changes in daily routines. All of this breakup admin requires patience, clear communication, and sometimes external support to manage effectively. This can be especially true when it comes to untangling shared finances and joint debt.
Whether it’s credit card debt, personal loans, or joint mortgages, determining who is responsible for debts accrued during a relationship can be particularly contentious post-breakup. In this guide, we look to explain the legal implications of debt division after a breakup and outline how financial unions can be dissolved in a fair and civil manner.
What is considered matrimonial debt?
Put simply, matrimonial debt includes any financial obligations that have been incurred throughout the duration of a marriage or civil partnership that benefited both parties. As touched upon above, this can include everything from mortgages and personal loans to credit card debt and any other liabilities accrued jointly or individually while the couple was together as a married couple.
It’s important to note that even if the debt is only in one partner’s name, it can still be considered matrimonial debt if it was acquired for the benefit of the family or household. For these reasons, when it comes to divorce proceedings, matrimonial debt is typically treated as joint responsibility, regardless of which spouse racked up the debt in question and whose name is on the account.
How is debt divided during a divorce?
There is no one-size-fits-all answer to this question. Instead, the division of debt during a divorce or separation mostly depends on the specific circumstances of the case, the different types of debt involved, and the tried and tested legal principles commonly applied here in the UK. Below we take a look at four categories of debt and how each is typically divided during a divorce.
Individual debts
In the UK, following a divorce, individual debts typically remain the responsibility of the spouse who incurred them. Courts don’t usually allocate individual debts to the other spouse unless there are exceptional circumstances, such as the debt benefiting the family as a whole.
As we touched on above, this is when debts can be considered ‘matrimonial debt’. This could include, for example, if one spouse took out a credit card or personal loan to finance household expenses or family holidays. In examples of this sort, courts might consider this when dividing assets and liabilities. However, as a general rule, each spouse is responsible for their own individual debts accrued during the marriage.
Joint debts
It should come as no surprise that joint debts are not treated in the same separate way. As the name suggests, when it comes to joint debts, both spouses are legally responsible for making repayments, even after separation. Joint debts include things like mortgages, loans, credit cards, and are very common for couples who have been together for a long time.
In order to make sure these debts are still repaid following a divorce, the court will aim to divide these debts fairly between the two former spouses based on individual factors such as each partner’s financial situation and their past contributions to the repayments in question.
Debts incurred after separation
Debts that are racked up by individuals in the period after separation, but before divorce is formalised, represent somewhat of a grey area. As a rule, these debts are generally the responsibility of the spouse who incurred them. However, once again, if the court believes these debts were taken on for the benefit of the family or household as a whole, they could be deemed ‘matrimonial debt’. In these cases, the court could rule that both individuals are responsible for aspects of these debts.
On the other hand, if one spouse incurs significant debts after separation that do not benefit the family or household, and in fact adversely affect the other spouse’s financial situation, this may be considered by the court when determining financial settlements. In these cases, they are typically not factored into the division of assets and liabilities during divorce proceedings. This means the debt remains solely the responsibility of the one spouse who racked it up.
Hidden debts
Like debts incurred post-separation, hidden debts can really complicate the division of assets and debts process during a divorce. Put simply, these are debts that one spouse may have concealed from the other during the marriage. For instance, debts racked up through secret gambling or credit card debt amassed from excessive shopping activity accrued without the knowledge of the other partner.
In theory, as these debts are hidden, they typically remain the responsibility of the individual rather than the couple to repay. However, individuals may attempt to circumvent this by keeping these debts – or their cause – concealed.
Legally speaking, both spouses are required to provide full financial disclosure during the divorce process. This includes the disclosure of any hidden debts they may have incurred. Failing to do this can have serious consequences and can even result in the reopening of the case for a fairer division of assets and liabilities. On top of this, the court can issue additional financial penalties if it believes one partner has attempted to conceal any form of debt during the division of assets and debts process.
How does an IVA affect divorce proceedings?
If one spouse is in an Individual Voluntary Arrangement (IVA) at the time of separation, this can impact how divorce proceedings play out in a number of different ways.
The main way an IVA impacts a divorce concerns the division of assets and liabilities. This is because the specific terms of the IVA in question could stipulate that certain assets are used to repay creditors. If these assets impact both partners – and not just the one restricted by the terms of their own IVA – the division of property during the divorce settlement can become far more complicated than normal.
For example, if one spouse’s financial situation significantly changes due to the restrictions placed on them during the course of an IVA, it can impact spousal maintenance payments or child support obligations. With this in mind, courts will have to take the IVA and its terms into account when making its ruling.
On top of this, if both spouses have joint debts but only one spouse enters into an IVA, it’s important to remember that the other spouse may still be liable for the full amount of the debt. In such cases, it’s essential to seek legal advice to understand your rights and obligations regarding the debt.
To learn more about how post-breakup debt and how debt management solutions work, visit MoneyHelper to get free advice. Alternatively, speak with one of our expert advisors today.
