Debts are often a fabric of everyday life; they enable individuals and couples to purchase a property or a car and can form part of day-to-day spending. When it comes to addressing the finances of divorce both parties’ debts, whether jointly or solely incurred, are taken into consideration.
A debt is a sum of money owed or due. In light of the current cost of living crisis, more and more individuals need to take out loans to help supplement their income. Debts can include credit card liabilities, loans, and finance agreements. They can also include more informal debts, i.e. loans provided by family members which may require further exploration to see if there is a paper trail or some form of written agreement.
If loans are considered to be ‘hard’ debts they will form part of the overall picture, whereas if the loan is considered ‘soft’ it may be left out. The Court considers the realistic expectation of repayment and the reality of enforcement as to whether a loan is hard or soft.
The distinction between hard and soft debts is crucial when it comes to assessing an individual's financial situation. Hard debts, such as credit card liabilities and formal loans, are easily identifiable and are taken into account when determining the overall debt burden. These debts are backed by legal agreements and have clear repayment terms.
On the other hand, soft debts are more informal in nature. They often involve loans provided by family members or friends, where there may not be a written agreement or a paper trail. These debts can be tricky to evaluate as they lack the same level of documentation and enforceability as hard debts.
Debts incurred before the marriage
If a debt was incurred by one spouse before marriage it is more likely to be considered a sole debt when the finances are addressed upon future divorce. The spouse who entered the marriage with a debt will more likely be solely responsible for the debt post-marriage.
However, debt can also be a burden for others, especially if the debt is substantial. It is important to keep this in mind when entering a marriage and to be open and honest about your financial situation with your partner so that there are no surprises down the road.
Debts incurred during the marriage
The starting point is to find out whether the parties are jointly or solely responsible for discharging the debts. To assist with this the reasons behind the debt(s) in question are considered. If the debt was acquired to benefit the couple and/or their family such as the purchase of a car or home improvements both parties may be treated as jointly responsible for that debt, irrespective of whether the debt is in the sole name of one spouse.
Where a debt has been incurred by one spouse and that person has had the sole benefit of the debt, the Court can in certain circumstances take the view that the debt should remain the responsibility of that spouse only. The types of debts that can be considered sole debts include gambling debts or those incurred due to frivolous spending.
Debts incurred after separation
In most cases, where one spouse continues to incur matrimonial debt in their sole name after a separation has occurred, both spouses will be jointly responsible for discharging it.
How does the Court treat debts?
Debts are considered when addressing the finances of a marriage and can be incorporated within any financial settlement. The starting point when addressing finances on divorce is for both parties to prepare and exchange full and frank financial disclosure including any debts, whether in their sole or joint names.
The Court takes into account the Section 25 Matrimonial Causes Act factors which include at S.25(2)(a) and (b) the income, earning capacity, property, and other financial resources of the parties and the financial needs, obligations, and responsibilities which the parties have or are likely to have in the foreseeable future. The debts of the marriage fall into this category.
The Court will look at the parties’ assets and debts to reach a view of the net asset position. It is unable to order any person to discharge a debt but can order one spouse to transfer monthly amounts to the other spouse to enable a particular debt to be paid.
How can Tozers help?
In order to navigate these complex issues, it is advisable for couples to seek legal advice to reach a mutually agreeable resolution. By working together and considering the best interests of both parties, couples can minimise the financial strain and emotional stress associated with the division of debts during separation. Contact our expert legal team for further information.
