The pandemic restrictions have impacted us all in many ways. Those working in industries that have been unable to operate may have been furloughed or lost their income completely. Some businesses stay "open for business" on the strength of government loans. Many have suffered from a significant change to their financial position. Sadly, for some families the strain of the last year has also resulted in separation, the effect of which is often compounded by debt.
How are debts treated on divorce?
With a couple of exceptions, ‘matrimonial property’ is everything acquired as a result of the efforts made by a couple during their marriage up until the date they separate. Just as assets acquired during a marriage stand to be shared fairly, when a married couple separate, so too does the liability for any debts accumulated during the marriage.
For a debt to be accounted for as a matrimonial debt, it must be quantifiable and owed at the date of separation.
Accounting for the matrimonial property is a bit like looking at the balance sheet for a company with assets and liabilities set against each other
Take for example couple AC and BC. At the date of separation, a snapshot of their finances is as follows: -
Joint | AC | BC | |
House | 400,000 | 200,000 | 200,000 |
Mortgage | (200,000) | (100,000) | (100,000) |
Savings | 100,000 | ||
Credit card | (20,000) | ||
Total | 200,000 | 80,000 | |
In the above example, the debt accumulated by BC if owed by them to a third party at the date of separation needs to be deducted from the total value of the matrimonial property at their side of the balance sheet.
If my spouse is in debt, will I be responsible for their debt if we divorce?
If a person has not contracted the debt, they are not responsible to the third party to repay it. Using the above example, in net terms, AC is responsible for the credit card balance owed by BC. BC will though remain responsible to the credit card company having contracted with them to begin with.
What if my spouse has incurred debt post separation?
Using the above scenario if AC or BC went on to incur further debt after separation, the debt incurred following separation would not be represented in the balance sheet above. In other words, it would not be subject to sharing as part of the matrimonial property.
Having explained how debts are accounted for, our next insight in this series will explain how separating couples might be affected by mortgage holidays and government loans.
