Joint debts after divorce
If you and your ex-partner owe money that was originally borrowed in joint names, you have what's called 'joint and several liability'. This means that if your ex-partner can't, or won't, make repayments, you are liable for the full amount - not just half of it.
Divorce makes no difference to this. Even if the money was used to buy something that only your ex-partner benefits from, you may still have to repay the whole loan to the lender if your ex-partner doesn't.
An exception to this rule is credit cards. If someone has a credit card and they get another card issued so a family member can use their account, the first cardholder is responsible for the whole debt - 'additional cardholders' do not have any legal responsibility to make repayments.
Mortgage after divorce
If you and your ex-partner took out a mortgage in joint names, you are both liable for the full amount of the mortgage. The lender could demand repayment of the whole lot from either of you if you fail to keep up with payments.
This makes it vital that you and your ex-partner decide what you want to happen with your home in the long run. If neither of you wants - or can afford - to keep your home by yourself, you should still make mortgage payments while trying to sell it. If you miss a payment, or you're late with it, it will affect your credit rating and you could find it difficult to get another mortgage, or any other type of credit.
You could even end up having the property repossessed. If you're struggling, talk to your mortgage lender about the situation - they may be willing to find a way to make the repayments more affordable.
Pay off or transfer
But if one of you wants to stay in your home, you will either need to pay off the mortgage altogether or transfer it to the partner who is keeping the property.
You may both decide the mortgage should be paid off as part of the financial settlement, but if you can't agree on this, the court may order you or your partner to pay a lump sum to pay off the mortgage straight away. Alternatively it could order you or your ex to pay maintenance to help with the mortgage over time.
Don't assume the lender will automatically allow you to take on the mortgage by yourself. They may decide that you can't afford the payments, depending on how much you earn and how big your outgoings are.
Mortgage lenders will normally take maintenance payments into account when calculating how much you can afford to borrow. But they may require evidence of a formal or court-approved agreement showing how long the maintenance payments will last.
Different mortgage companies set different lending criteria: you could ask a mortgage adviser to help you check whether another lender might be prepared to lend you the money. You might be able to switch to a mortgage with a lower interest rate - and lower monthly payments.
Separating your finances
Many couples have joint bank accounts and loans, and have allowed their partners to have a second credit card on their account. You should contact your bank, credit card company and other financial providers as soon as possible to explain that you and your partner are divorcing, particularly if the separation isn't friendly.
You may want to ask your credit card company to 'freeze' any additional credit cards if you are the main cardholder.
You could also open a new bank account in your own name and arrange for your salary to be paid into it.
While you are doing this, ask your bank to change the terms of your joint account so that both partners must give permission for a payment or cash withdrawal. You will need to sign new mandates to allow for the payment of essential items, such as the mortgage or rent, utility bills and council tax. As always, you'll need to make sure there's enough money in the account to meet these.
Remember, a bank account cannot be closed while in overdraft - and if the account is a joint one, you are both responsible for paying the whole debt off.
If you're not sharing your finances any more, you can ask credit reference agencies to put a notice of disassociation on your credit record, so it's clear you're no longer 'linked' financially.
Help with debt problems
Divorce doesn't always lead to debt problems - but it certainly can. In 2013, around 10% of the people who came to Debt Advisory Centre for help said they were struggling with their finances because they'd separated from a partner.
Everyone's situation is different, but there are a number of 'debt solutions' that can help people get back in control of their finances.
How do I get out of credit card debt?
A way to replace multiple debts with just one. This could simplify your finances and reduce the monthly cost of repaying your debts. This kind of loan is often secured against property.
However, securing debt against property can put it at risk if you don't keep up with your payments. Plus, repaying debt more slowly can cost more in the long run.
If you're really struggling and can't afford your payments, consolidation won't be the answer (you might not even find a lender who'll give you a loan). The next section will discuss some options that may help.
Debt management plans & DAS
Two debt solutions that involve making a new agreement with your unsecured lenders - so you can repay what you owe more slowly, making lower payments every month until it's paid off in full.
However, making lower payments will take longer and cost more. It'll also affect your credit rating. Lenders don't have to agree - they'd want proof that you can't afford your original payments and that this looks like the best way to get the money repaid.
If you don't think you can repay your debts in full, you might need to think about an insolvency solution.
Insolvency means admitting that you just can't repay everything you owe. There are four kinds and they all work in different ways, but they can all actually write off some or all of your debt, as well as protecting you against action by your lenders.
However, they'll all have a serious impact on your credit rating. They could stop you doing certain jobs. Bankruptcy could cost you your house (if you own one), while an IVA or Trust Deed could mean you have to release equity from it - and DROs aren't even available to homeowners.
If you'd like to know more about these debt solutions, just give us a call on 0161 605 4810. Fees are also payable for ongoing services.
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