What happens to debts when you divorce?

Sorting out debts when you divorce is as important as separating other assets. Some would even say more important, as unaffordable loan repayments, credit card bills and marks on your credit profile can all affect your ability to move on with your life.

Debt can often be a tricky area for divorcing couples, as a surprising number of people don’t really discuss it while they’re married. In this blog, our divorce solicitors explain how debt after divorce works.

How the law sees debt in marriage

Most people know if they’re on a joint mortgage, but many spouses have separate credit cards, bank accounts and other financial products, meaning each person might be in the dark about the other’s use of credit.

The law in this area can be complex to understand. On the one hand, the family courts tend to presume (until proven otherwise) that debts incurred during a marriage are on behalf of the family, so can be deducted from the ‘pot’ of assets available for distribution, thus potentially reducing the other party’s share.

On the other hand, it’s clear that any debt in your name (or joint names) is one that you are personally liable for. So even if the holiday you paid for on your credit card was for both of you, you’re still responsible for paying it all off.

Since the introduction of no-fault divorce in April 2022, the process of ending a marriage has become simpler. But no-fault divorce only deals with the legal end of the marriage itself; it doesn’t automatically sort out your finances, including debt. That still needs a separate financial settlement, and it’s worth getting this right even if the divorce itself feels straightforward.

Who pays the mortgage when you get divorced?

In practice, the biggest debt after divorce and the one most people worry about is the mortgage. How this is dealt with depends on the state of each individual’s finances and access to credit.

• If the house is going to be sold, the value of the remaining mortgage is calculated and deducted from the property’s value. What’s left (the net value) goes into the ‘pot’ for distribution.
• If one spouse needs to remain in the property (typically to minimise disruption to the children), a number of questions arise:
  • How is the net value of the property to be shared between the parties?
  • How and when will the non-occupying party receive their share?
  • Can they afford the mortgage repayments alone?
  • Will the lender agree to transfer the mortgage into their sole name?

Often, if someone has low earnings or a poor credit history, the mortgage lender may be reluctant. If this happens, then the mortgage remains in joint names, and both parties are liable for it. This presents issues for the spouse leaving the property, as they don’t want to continue paying for a house that they can’t live in or sell, especially as they will have their own housing costs to consider as well.

In these situations, one solution is for the ex-couple to form a binding legal agreement between themselves: a Deed of Trust. This way, although the mortgage remains in joint names, one person can undertake to meet all the monthly repayments, effectively indemnifying their ex-partner against the debt.

Who’s responsible for credit cards, car loans and other debts after divorce?

The family courts presume that debts incurred during a marriage are familial debts until shown to be otherwise. This includes credit cards, loans and car finance. These debts can therefore be deducted from the total value of the assets for distribution unless there’s a good reason not to.

In theory, this means that if one person’s debts exceed their assets, they will be making a negative contribution and therefore get more out than they put in.

Debts which have been reasonably incurred after the marriage by one person can also be deducted from their contribution.

The key test here is that of ‘reasonableness’. It may be reasonable to incur debt while finding new accommodation, for example. It may be less reasonable to incur it while purchasing three new sports cars!

Can I be forced to pay my ex-partner’s debts?

As far as creditors are concerned, the debt belongs to the person whose name is on the bill. At the same time, if an ex-couple owns joint assets, credit companies can try to recoup their money from the debtor’s share.

For example: a married couple separates. She stays in the former marital home, while he finds alternative accommodation. He has considerable credit card debts, which he adds to after the separation. Ultimately, he falls behind in his repayments. His creditors then decide to claw back their money.

Because the property is still in joint names, they are entitled to claim against his share in the property and send the bailiffs in, or, worse still, secure a charge against his share of the property and obtain a court order for the whole house to be sold so they can get their money.

This is exactly why it matters to formalise your financial split, rather than relying on an informal agreement between you.

How we can help

The complexities around debt after divorce mean it’s vital to get sound legal advice on financial separation at an early stage. Our divorce finance lawyers can help you reach a fair financial settlement that accounts for debts as well as assets, and make sure it’s properly formalised so you’re protected going forward.

To speak to our team about separating your finances, call us on 0117 325 2929 or complete our online enquiry form.