Emergency guide: Divorce and debt

Sorting out joint finances is an added pressure when going through a divorce / separation. Below is a short guide to dealing with debt during a divorce - and three tried-and-tested methods that can help people deal with debt.

Joint debt

When you have debts as a married couple or civil partnership, legal responsibility for the debt is limited to whoever is named in the agreement.

While divorce law treats debts as being the responsibility of both partners, the lender who is owed the money can only take action against the person who took out the loan, credit card or other form of debt. So it is up to the spouse or civil partner - not the lender - to try to enforce some contribution from their ex-partner.

Debts like these must be taken into consideration when deciding on financial settlements.

Lenders do, however, see some debts as both partners' responsibility.

Spouses and co-habiting partners are both legally responsible for any overdraft on a joint bank account. Both parties are also responsible for any joint loans taken out in both names. This is the case even if only one partner spent the money or kept an item financed by the joint loan.

With any debt, it's probably best if spouses can come to an arrangement between themselves about how to deal with it when they separate.

Moving on

Divorce is a difficult and often upsetting time. Naturally you will want a fresh start, but having to repay debt can make you feel like you haven't really moved on. Unfortunately there is no 'quick fix' for moving on after a marriage or for debts. However, there is help and support available.

If you have debt issues and you want to deal with them sooner rather than later, here are some debt repayment options for people in three different kinds of situation.

Debt Management

If you're finding it difficult to keep up with the current monthly payments to your lenders on your unsecured debts (credit cards, loans, hire purchase, etc.), you could opt for a debt management plan. It involves making new arrangements with your lenders so that you can make lower monthly payments and repay your debts at a rate that's calculated to be affordable. You could try to make these new arrangements yourself, or you could ask a professional to help you.

Some of the drawbacks include having your inability to maintain your agreed repayments noted on your credit file for six years. Also, reducing your monthly payments now may mean it takes longer to become debt free overall. And it's only suitable for you if you know you'll be able to keep making regular payments into the plan.

Debt Consolidation

Following a divorce, you may have more than one debt you are responsible for, so a debt consolidation loan could be a way to simplify your payments. It could also lower your monthly repayments (although this could cost you more in interest if you spread the repayments over a longer period).

As with most debt solutions, you must be certain that you are in a position to make regular monthly payments for the term of the loan, especially if that loan is secured on your home - as you would risk losing your home if you find you cannot make the payments.

IVA

An IVA (Individual Voluntary Arrangement) is an alternative to bankruptcy and an agreement with your lenders to pay back as much of your unsecured debts as you can, usually over five years, and have the rest written off.

It is possible to be on a joint IVA (if you feel comfortable with that). When you are on an IVA, you might also have to release equity in your home to repay any outstanding debt. If you don't own any property, this would not affect you.

Again, this sort of debt solution is only for people who have significant unsecured debts - and an IVA would stay on your credit file for six years from the day it begins.