Chicken and Egg - Financial distress can be both the cause and result of divorce
Phillip Allen, Licensed Insolvency Practitioner at Debt Lifeboat
Falling in love is as much a financial gamble as it is an emotional lottery. Short of running a credit check on your beloved (and I worked with a woman who did just that) you have little way of knowing what financial problems they are grappling with. And even if you both enter the relationship debt-free, credit problems can build up surprisingly rapidly, which can sour some partnerships.
While we can’t help who you fall in love with, Debt Lifeboat experts can help you sort out your financial problems if you’ve been left with high levels of debt. What people most need at a time like this is help with practical decisions. We outline the possible options and, if you believe an IVA suits your needs, swiftly take you through the process to help get you debt-free within five years.
Just as the start of a relationship is often marked by high levels of spending on dinners out and gifts for the beloved, so the end of a relationship is invariably a time of high expenses. This time, though, the expenses are altogether less frivolous: high interest on jointly-held credit cards, lawyers and accountants’ fees and maintenance payments.
There were just over 155,000 divorces in the UK between 2004 and 2005, representing 1% of all married couples every year. During the same period, total UK household debt rose to a staggering £1.7 trillion. Nearly half of those who get divorced say it caused them more financial problems than bereavement or redundancy. This is hardly surprising when you consider the average couple going through a divorce can expect to face a bill of around £13,000 to cover legal fees, maintenance payments and the costs of setting up a new home.
At Debt Lifeboat, we find that the best financial decision for one partner may be entirely different to the other. There is no “one size fits all” solution. For example, one partner will often have been the main ‘debtor’ in the relationship, putting most of the credit in their name. For this individual, bankruptcy might be the best choice. But an IVA might be the best alternative for that person’s partner. Debt Lifeboat can act for the couple jointly if this is the most effective way of sorting out their debt problems.
Before outlining the alternatives, Debt Lifeboat experts will need to find out:
- The size of any joint loans
- The value of all assets that are held in joint names
- Whether or not there are children involved
- Whether the couple are married or not
Close joint accounts immediately
The first step is to close all accounts that are in joint names. Keeping them going only increases the likelihood of further acrimony.
Where there are joint debts, the creditor will pursue each party for the full amount of the debt. Though it may appear that the creditors are demanding double what they are owed, they will stop pursuing both parties once they have been paid in full or if an arrangement has been agreed.
Carefully divide your assets
You and your ex-partner need to agree on how to divide your joint assets between you. It’s important that this does not disadvantage the creditors in each estate. In other words, that you do not contrive things so that one party has the assets and the other the liabilities. This could be deemed as a ‘transfer at under-value’ and would be upturned by a Trustee in Bankruptcy if the party with the debts were to become bankrupt.
Similar care should be taken with jointly-owned assets such as property. The complication here is that the mortgage and/or other secured charge may also be in joint names and the remaining party may find the lender refuses to allow them to transfer this debt to their sole name.
Even if the lender does agree to the transfer, this could be an insurmountable burden for an individual. And the partner who’s handed sole ownership to their former partner may find they are still liable for the debts if the other party defaults on the loan. The problem could be an adverse credit rating or even an extensive liability. Timely advice at the outset could steer you away from the pitfalls that can return to grab you years later.
Maintenance payments must be preserved
Adequate financial provision for children and other dependents is your priority and these obligations will be taken into account by creditors. Creditors can expect to see incomes from both former partners to ensure that an adequate and fair contribution is being made to the creditors and the children.
The Child Support Agency payments can prove problematic in a bankruptcy, because the CSA won’t usually take a person’s debts into account when conducting an assessment. At the same time, these payments are not provable in bankruptcy so don’t form part of the arrangement.
This is one way in which an IVA can help. Creditors agreeing to an IVA accept that CSA payments are part of a person’s essential living expenses, so the monthly sum going into an IVA is calculated after the CSA payment is taken out.
For more information and help with your debt problems call Debt Lifeboat on 0800 917 3328.
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