What's mine is yours – including my debt

A survey published at the end of last year by the family law organisation, Resolution, shows that nearly a third of separated couples were in debt to bank or credit card companies, as a direct result of their relationship breakdown. The survey also found that 16 per cent of those questioned needed to turn to a friend
or family member for financial assistance, and 26 per cent had to actually move in with that person to make ends meet. Separating couples with children were more likely to need help.

One of the major causes of debt is encountering unforeseen circumstances, and separation or divorce can obviously fall into that category. But it is fair to say that not all of the blame can be laid at the door of disintegrating relationships
as personal debt is also a major problem.

Figures from the Bank of England released in 2013 show that personal borrowing in the UK, including mortgages and unsecured loans, stood at £1.43trn in 2013. The Money Advice Service reported in 2013 that 18 per cent of Britons consider themselves to be struggling with debt.

The economic downturn has dragged down the population's ability to save enough for their future and affected their ability to manage money on a day-to-day basis. But could it also be that the 'live for now because I'm worth it' culture is now having to pay for its lifestyle? Many teenagers and young adults display a worrying lack of financial knowledge and for some families, living with an increasing debt burden is just par for the course. Many divorce lawyers will have encountered families paying for household expenses and school fees on credit cards, gambling that the year-end bonus will be enough to wipe the slate clean so that they can start over again.

A divorce or a separation between cohabiting partners can make a bad debt situation much worse however, and cause huge financial pressures. Suddenly two homes have to be rented or purchased, furnished and the outgoings paid.
Money needs to be found for moving costs, stamp duty, maybe a second car and legal fees. People who possibly have never managed money in their lives before suddenly have to get to grips with monthly budgets, mortgage repayments and a never ending stream of bills.
This can get out of hand very quickly.

If the separating couple are not married, then it can be difficult to force a former partner to contribute towards the repayment of debts, even if they were jointly incurred. An application can be made under schedule 1 of the Children Act 1989, but such applications are rare and the costs prohibitive. There is no general jurisdiction for a separating partner to seek financial support from
the other. The only claims available
under family law will be claims on
behalf of a child of the relationship,
or claims in respect of an interest in real property under the Trusts of Land and Appointment of Trustees Act.

If the debts are owed jointly, such as a mortgage, then the parties will have joint and severable liability, and the lender can pursue one or both parties for repayment. But many debts will fall to be repaid by one party only, such as credit cards. Even if each party has a credit card on the same account number, it is likely that the account is held solely in the main card holder's name, and they alone are therefore legally liable for the debt.

Joint bank accounts are particularly problematic. During the initial stages of a separation, it is common for parties to make withdrawals without the other's consent over and above the limit and thus incurring a debt for which both are liable. Accounts can be frozen, but this is not practical if the account is used to pay vital direct debits. If an account is transferred into one party's name, that can solve the problem of disputed withdrawals, but the parties do then need to agree as to the payment of future direct debits.

Under matrimonial legislation, couples who are married have greater rights than couples who are simply living together. The court can make lump sum orders and/or maintenance orders to allow for repayment of debts. The court can scrutinise debts, looking at the reasons why they were incurred and whether the monies were used for the benefit of the family. However, the usual approach is for the court to seek to simply wipe the slate clean and pay off the debts from the matrimonial pot.

If one party has unreasonably run up debts, then the other party can ask for the court to 'add back', in other words, to treat the debtor as if they still had the money and to reduce their share of the matrimonial pot accordingly. But this only works if there is an excess of money in the pot to start with; if the case is being decided on need, then needs will trump any 'add back' argument.

Advice for clients: avoiding debts

• Recognise that the divorce arena is not the best one in which to raise personal issues or old grievances. It is a very expensive forum in which to settle old scores and it can raise the temperature and make an amicable settlement almost impossible. Keep focussed on the real financial issues and try not to take the bait if you feel goaded by your former partner.

• Use your lawyer's time sensibly. Complete the first draft of your Form E or Financial Statement yourself, put together a complete pack of your disclosure documents and keep track of correspondence and the advice you have been given.

• If you have not already separated, consider a pre-nuptial or living together agreement which deals with liability for debts.

• Use alternative dispute resolution instead of filing an Application for Financial Remedies, or an Application for an order under the Trusts of Land and Appointment of Trustees Act. It will probably be quicker, cheaper and give both of you a say in your future, instead of having a solution (that perhaps will not be palatable to either of you) imposed upon you by a district Judge at court.

• Don’t spoil your children financially to make up for their parents separating. Children would usually rather have quality time with their parents instead of an expensive bribe.

• Do you really have to keep the matrimonial home? Think logically, rather than emotionally. Your children will adapt to a move more quickly than you think and it is vital that you don't take on mortgage repayments that are unsustainable in the long term. Some women seek to keep the family home in return for agreeing to forego claims against their husband's pension. But sometimes they would be better-off selling the house, paying off the mortgage and thus cutting their expenditure, and buying a smaller property and taking their proper share in the pension to use to fund their retirement. District judges will generally order a sale, unless the party wishing to stay in the property can take over the mortgage with ease.

• Recognise that if your household income has to pay for two households in the future instead of just one, belts will have to be tightened. Do not make your expenditure schedule a 'wish list'.

• Check whether you are entitled to any state benefits.

• Consider freezing any jointly held bank accounts or ask the bank to withdraw the overdraft facility.

• Don't spend on unnecessary items to boost your self-esteem. The adrenalin boost caused by a shopping spree won't last, the expenditure is unlikely to be considered justifiable and the court will take a dim view of such extravagant behaviour.

Advice for clients: overcoming debts

• Get proper financial disclosure from your partner. Make sure you know the true extent of their financial situation including all debts for which you might be partly liable.

•  Keep your lenders informed of any financial problems. They may be able to offer you a payment holiday or be willing to negotiate a repayment schedule. Otherwise your house could be repossessed or a country court judgement could be made against you and your credit rating could be damaged for years to come.

• Make sure that any order deals clearly with debts and dismisses all outstanding claims, in so far as possible, so that your ex-partner cannot come back to seek further funds from you in the future, if they run into financial problems.

Headlines raised by debt surveys such as this are worthy of our time but perhaps do unfortunately demonise divorce and separation, and could actually make people ashamed of their debts and their failure to manage their finances. Instead of criticising people, we need to make sure that help is there to ensure that people feel they can admit the true extent of their debt, can seek appropriate advice and can be helped with resolving issues at an early stage.

Judith Fitton is a senior associate
at Mundays