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Dealing with debt on separation or divorce

Added on: 27th September, 2017 by Nicola_20987

Dealing with debt on separation or divorce

Last Updated:
Wed, 27 September 2017

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One of the many issues to be resolved on divorce or separation is what is to happen to the assets of the marriage, such as who gets the house or whether it is to be sold. On the other hand, you also need to reach a decision on what is to happen with any debts of the marriage, which could be in either of your sole names, or it might be a joint debt.

Even if the debt is not in your name you could find yourself affected if, for example, the debt is registered against the property you live in. Keeping up with loan repayments is vital, or you could find yourself with a county court judgment or have your credit rating adversely affected.

Cath Freeman, family lawyer at Malcolm C Foy & Co in Doncaster and Rotherham explains how debts that have accrued during the course of your marriage can be dealt with when you split up.

The mortgage

The largest debt is likely to be the mortgage on the matrimonial home. If the property is going to be sold, this is not an issue, and the mortgage will be redeemed. If there is not enough equity to pay off the mortgage, there may be difficulties in selling and the mortgage company will want the debt paid from other assets.

If the property is not going to be sold, the question of who will be responsible for the mortgage will arise. The mortgage is often raised against your joint income, or in the name of the highest earner. You will need to consider whether the mortgage company will agree that whoever remains in the home will be solely responsible for the mortgage, or whether there should be a fresh mortgage, paying off the original joint mortgage.

It may be that neither of these options is possible. In this case it is usual for the person who remains in the home to give a promise or undertaking to the other that they will try to release them from the mortgage as soon as their circumstances change, and indemnify the other against any claims on them by the mortgage company.

Other registered charges

As well as your mortgage, you may have other loans secured against the property. These are usually larger amounts of money used to pay for significant purchases, like an extension, or to consolidate smaller loans. The lender may have registered a charge on your property. You will need to obtain copies from the Land Registry to confirm all charges registered against your property. This means that if you want the property to be transferred to you, you will know what debt you might have to take on. Business debts may also be charged against the property. These are often registered as all money charges, which means they can vary with the indebtedness of the company.

Other unsecured debt

There may also be other unsecured debts, such as credit cards, car finance and bank loans that are in your joint or sole names. You may feel that you should not be responsible for your ex-spouseís debts. If you cannot agree who should be responsible for what debt, the court can make a declaration as to what debt is which personís responsibility. Usually this involves identifying what is a matrimonial debt. One personís purchase of a non-essential item may be their sole responsibility.

Matrimonial debt

If the debt was incurred for something you jointly enjoyed during the course of your marriage, such as a holiday or house improvements, the court is likely to look at this as a joint responsibility. The monthly repayments and the rate of interest paid will be considered when making a decision about the debt and this may also affect maintenance payments from one spouse to the other. There may be a discount or a penalty for early repayment, which needs to be considered.

Latent debt

It is important to know what the actual value of an asset is when dividing the assets. When considering the debt of larger assets, such as property or a business, the costs of sale and any tax implications, including any capital gains tax liability, will need to be considered and deducted to achieve the net figure.

Using mediation or collaborative law

Sorting out your finances does not have to lead to bitter recriminations. Instead, by using mediation/collaborative law we could help you to resolve your financial settlement quickly and without the need to go to court. As a couple, you will be in charge of the negotiations, with your trained mediator/lawyer at hand to give you advice throughout the process.

For more information about divorce, separation, financial settlements or any other family law matter.

Contact: -

Cath Freeman
E: cfreeman@malcolmcfoy.co.uk
T: 01302 340005
F: 01302 322283
W: www.malcolmcfoy.co.uk


The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice, and the law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice on their own particular circumstances.11.10.16

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