Law Articles

Navigating Individual Debts in Divorce/Dissolution 11/06/2024

Divorce or dissolution of a civil partnership is an emotionally and legally complex process. Among the many aspects to consider, dealing with individual debts adds another layer of complexity to an already intricate situation. Resolving individual debts during divorce or dissolution involves understanding legal principles, negotiation, and sometimes court intervention.

Legal Framework

Family law approaches the division of assets in divorce or dissolution with a principle of fairness. This involves considering various factors, including the financial needs and obligations of each party, their income, earning capacity, property, standard of living, etc. While this framework guides the process, each case is unique, and outcomes can vary widely.

Joint and Individual Debts

In the context of divorce or dissolution, debts can be categorised as either joint or individual. Joint debts, such as mortgages in joint names or joint bank loans, are liabilities shared by both parties. Individual debts, on the other hand, are those incurred by one party alone, which may include personal loans, credit card debts, or business debts.

Responsibility for Individual Debts

Determining responsibility for individual debts hinges on several factors. If a debt is solely in one party's name, the creditor may pursue that individual for repayment regardless of the divorce or dissolution. However, the division of assets and liabilities during the divorce or dissolution proceedings can influence how individual debts are managed. Individual debts can be classed as matrimonial or non-matrimonial.

Matrimonial Debts

Matrimonial debts are those that have been incurred for the benefit of the family or during the marriage or civil partnership. These debts are typically considered joint responsibilities of both parties and may include: 

1. Mortgage Debts: Loans taken out to purchase the family home or other properties used by the family.

2. Household Bills: Utilities, groceries, and other regular living expenses accumulated during the marriage.

3. Car Loans: Loans taken out to purchase a vehicle used by the family.

4. Credit Card Debts: Debts accrued on credit cards for family-related expenses, such as holidays, home improvements, or school fees.

5. Personal Loans: Loans taken out for family purposes, such as renovations, medical expenses, or family holidays.                                                                                                                                 

Non-Matrimonial Debts

Non-matrimonial debts are those incurred by one party either:

i. before the marriage or civil relationship; or

ii. for their sole benefit during the relationship.

These debts are usually considered the sole responsibility of the individual who incurred them. Examples include:

1. Debts Incurred Before Marriage: Any debts one party had before the marriage, such as student loans or personal loans.

2. Business Debts: Debts incurred in relation to a business owned and operated by one party, particularly if the business was not significantly contributing to the family’s finances.

3. Personal Purchases: Debts incurred for personal expenses, such as luxury items, hobbies, or personal travel not related to family needs.

4. Gambling Debts: Debts accrued from gambling or other personal, high-risk financial activities.

Financial Disclosure

Central to resolving financial matters in divorce or dissolution is full and frank financial disclosure. Both parties are required to provide information about their financial circumstances, including assets, income, and liabilities. This ensures transparency and enables the parties to negotiate a fair settlement, and it ensures the court can make informed decisions about the division of assets, including debts.

Negotiation and Settlement

Most couples opt to negotiate a financial settlement without court intervention, either through mediation or other non-court dispute resolution methods, or by negotiating a settlement through their solicitors. This means that, in practice, the question of whether an individual debt is matrimonial or not comes down to what the parties can agree.

Considerations in Divorce and Dissolution Proceedings

In the absence of agreement, the court will assess the nature of the debts and determine how they should be divided. Matrimonial debts are often divided between both parties, whereas non-matrimonial debts are typically assigned to the individual who incurred them. However, to reach a fair distribution of family assets, the court will consider various factors, including the contributions of each party, the purpose of the debt, the parties’ financial needs, the needs of any dependent children, etc, which may in some instances mean that even individual, non-matrimonial debts are shared between the parties. Where there are substantial assets, and both parties’ reasonable housing and living needs can be met, it is more likely the court will assign the individual, non- matrimonial debts to the party who incurred them.

For further information and advice on this issue, and other family law issues, please contact us for a free initial consultation on 01992 306 616 or 0207 956 2740 or email us.