Dividing debts

How courts view debts

Just as courts divide assets in divorce, they also consider how debts should be allocated. The aim is a fair overall settlement, taking into account what you own and what you owe.

Generally, courts assume that debts incurred during the marriage for the benefit of the family are joint responsibilities – regardless of whose name they’re in. This includes:

• The mortgage on the family home
• Loans taken for family expenses (car, home improvements, holidays)
• Credit cards used for household spending
• Overdrafts on accounts used for family finances

However, debts that clearly benefited only one spouse may be treated as that person’s responsibility alone.

The crucial difference: courts vs creditors

Here’s something many people don’t understand until it’s too late:

What the court decides and what creditors can enforce are two different things.

In your financial settlement, you might agree (or a court might order) that your ex-partner will pay a particular debt. But this agreement is only between you and your ex-partner – it doesn’t change your legal liability to the lender.

If the debt is in joint names, the lender can still pursue either of you for the full amount. If your ex-partner stops paying, the creditor will come after you, regardless of what your divorce settlement says.

Joint and several liability

Joint debts operate on the principle of “joint and several liability.” This means:

• You’re not just liable for “your half”
• Each of you is liable for the entire debt
• If one person can’t or won’t pay, the other must pay everything
• The creditor can choose to pursue either or both of you

This applies to:

• Joint mortgages
• Joint loans
• Joint credit card accounts
• Joint overdrafts
• Any debt you’ve both signed for

Types of debt in divorce

The mortgage

The mortgage is usually the largest debt. Options include:

Selling the property: The mortgage is paid off from the sale proceeds. Any remaining equity is divided; any shortfall (negative equity) needs to be addressed.

One person keeps the home: The mortgage needs to be transferred to their sole name (subject to the lender’s approval and affordability checks). The departing spouse is released from liability.

Both remain on the mortgage: Sometimes unavoidable if the remaining spouse can’t qualify for a mortgage alone. But this leaves the departing spouse liable, potentially affecting their ability to borrow.

Credit cards

Credit cards in one name are that person’s liability to the card company. But in your divorce settlement, you might agree to split the balance if it was used for family expenses.

Joint credit cards are both your responsibility. Consider:

• Paying off the balance and closing the account
• Transferring the balance to cards in individual names
• One person taking responsibility (but protecting yourself if they don’t pay)

Personal loans

Like credit cards, personal loans in one name are that person’s legal responsibility to the lender. But courts consider whether the loan was for family benefit when dividing responsibilities in the settlement.

Joint loans follow the same joint and several liability rules as mortgages.

Overdrafts

Overdrafts on individual accounts are that person’s debt. Joint account overdrafts are a joint liability.

“Soft” loans from family

Money borrowed from family members is treated differently. Courts may question whether these are genuine loans that need to be repaid or informal arrangements that are unlikely to be enforced.

If you’re claiming a family loan as a debt, you’ll need evidence:

• Written loan agreement
• Defined repayment terms
• Evidence of actual repayment
• Formal documentation

Informal “loans” from parents with no real expectation of repayment may be disregarded by the court.

Protecting yourself

Before separation

• Get a clear picture of all debts – joint and individual
• Check your credit report for any debts you might not know about
• Don’t take on new joint debt
• Keep making payments on joint debts to protect your credit rating

During divorce

• List all debts in your Form E disclosure
• Be honest about debts – hiding them can backfire badly
• Consider how to remove your name from joint debts
• Don’t assume your ex-partner will pay what they’ve agreed to

In your settlement

Where possible, ensure debts are transferred to individual names as part of the settlement. Options include:

Pay off joint debts: Use proceeds from selling assets to clear joint debts before dividing what remains.

Refinancing: The person keeping a debt takes out new borrowing in their sole name to pay off the joint debt.

Indemnity: Your ex-partner agrees to indemnify you (compensate you) if they fail to pay a debt you remain liable for. This gives you legal recourse against them – but doesn’t prevent the creditor pursuing you.

What about debt run up by your spouse?

If your spouse has run up debts in their sole name, you’re generally not liable to the creditor. But in your divorce settlement:

• If the debt was for family benefit (groceries, children’s clothes, joint holidays), courts may consider it a joint responsibility
• If it was clearly personal spending (gambling, affairs, gifts to someone else), it’s more likely to stay with the person who incurred it
• Deliberate wasteful spending may be considered as “conduct” affecting the settlement

Student loans

Student loans are treated differently from other debts. They’re generally considered the responsibility of the person who took them out and aren’t usually factored into the division of assets. Repayments continue based on individual income after divorce.

Business debts

If one spouse has business debts, whether they affect the divorce settlement depends on:

• Whether the business is a matrimonial asset
• Whether the debt is personal (sole trader) or company debt (limited company)
• Whether personal guarantees were given
• Whether the other spouse benefited from the business

Business finances can be complex – professional advice is usually essential.

Dealing with debt problems

If you’re struggling with debt during or after divorce:

StepChange (0800 138 1111) offers free, confidential debt advice

National Debtline (0808 808 4000) provides free advice on debt problems

Citizens Advice can help with debt issues as part of broader support

Don’t ignore debt problems – they tend to get worse. Seeking help early gives you more options.

After divorce

Even after your divorce is finalised:

• Monitor any debts your ex-partner agreed to pay
• Check your credit report regularly
• Keep records of any payments you make on debts your ex-partner should be paying
• Act quickly if payments are missed – contact the creditor and seek legal advice

If your ex-partner fails to pay debts they agreed to in your consent order, you can return to court to enforce the order. But this takes time and money, and doesn’t stop the creditor pursuing you in the meantime.