Divorce is an unpleasant process, made even worse when one or both partners are in debt. During the split, individual and joint debts are considered in the financial agreement. Divorcing spouses should ensure that all debts are properly handled so neither person is unfairly burdened with these. If divorced people find themselves in debt, they should understand their options. The UK offers both informal and formal methods to handle debt.
When divorcing, each spouse is usually responsible for debts in his or her name only. However, this does not mean that the other person is not responsible for repaying some or even all of the money. The decision is determined by the credit agreement or contract and an accountant, solicitor, or debt management professional can provide assistance.
Debts that are jointly held, as reflected by both names being on the agreement or contract, are the responsibility of both partners. These include debts like store cards, credit cards, and overdrawn bank accounts. Even if joint credit was used to purchase something for only one member of the couple, the partner must pay the debt if the other person does not. Once they determine that they will separate or divorce, couples must freeze or cancel joint bank accounts, credit cards, and store cards. This prevents one or both people from running up debts on purpose or accidentally.
To prevent lenders from taking action, the couple should quickly develop a plan to handle outstanding payments for joint debts. A mediation service can help the couple reach agreement regarding financial matters without attending court. To prevent future issues, a solicitor can then be used to verify that the agreement is both fair and legally binding. If the couple cannot agree on how debts should be distributed, a solicitor should be involved from the beginning and the situation may require resolution through court.
When people find themselves in debt after divorcing, they can become very discouraged. A divorce is typically financially damaging in itself because each person must now live on a single income. Adding debt can be enough to drive a divorced person to desperate measures. Fortunately, the UK offers everything from debt consolidation, to debt relief orders, to bankruptcies for residents in debt.
There is no single effective way to handle debt. Amount and type of debt and financial situation of the borrower are a few factors that dictate which alternative will be best. The individual should consult with a debt expert who will assess the financial situation and propose ways to handle debt that exists following a divorce. Failing to deal with debt, especially priority debts like secured loans and mortgages, can have severe and long-lasting consequences.
Even failure to pay credit card and other non-priority debts can result in court action from the creditor. The impact on the credit rating can prevent a divorced person from getting on with the new life. Therefore, it is important to get independent advice on handling debts that existed prior to or develop after a divorce.