Debt from separation

Debt counseling and support

The UK Insolvency Helpline and the UK's leading divorce and separation website, Divorce Aid have been working together providing counseling and support for many years. Unfortunately debt through separation or divorce in the credit-led world we live is inevitable. There are ways you can deal with the financial implications of a break-up of a marriage that will lessen the trauma of divorce or separation. This section of the web site should put couples on the right track.

If you, your partner, a friend or relative are suffering debt through divorce or are in the midst if a seperation then the specialist debt counsellors at The UK Insolvency Helpline will certainly be able to help you find the best way through the minefield.

This new section of the website will provide a simple, easy to understand guide to help through the financial process of splitting up when divorce or separation is the only option. The debt counseling team will let callers know all the strategies that will be invaluable thus minimizing the debts incurred through divorce or separation.

The section looks at going through divorce from the debt after divorce perspective.

As anyone who has ever been divorced doubtless knows, the divorce process can leave both parties heavily in debt. The emotional side of divorce can take its toll, but the financial process can in fact be one of the most stressful aspects of separation, and dividing up any debts from the marriage can leave a huge dent in your bank balance. Since the whole process can be costly, both in financial and emotional terms, there has been a move towards a more amicable approach to sorting out the terms of a separation. With the launch of the "Debts after Divorce Campaign", from the UK Insolvency Helpline and Divorce Aid, the self-help and support website for families going through divorce, there is now a structured approach in dealing with household debts.

This is welcome news as the strain of Britain's 160,000 divorces each year is not just stressful, with almost half (45%) those surveyed saying breaking up has caused more financial problems than bereavement or redundancy. People who split up also use up their personal savings as well, with 36% becoming heavily in personal debt as a result. 30% of divorcees stated that they needed professional debt counseling and advice, while 28% found it hard to adjust to having just one household income and 10% had difficulty sorting out their debts and had to consider bankruptcy. The research carried out by the UK Insolvency Helpline in conjunction with Divorce Aid has shown that the cost of divorce can leave couples heavily in debt and sometimes becoming an ex also brought out the need to spend money on themselves, with 15% saying they had utilised credit cards to purchase holidays or luxuries they would not have bought if still married. This can be a very sore point during the divorce process.

Only 8% of people said they had managed to control their finances and had come to an amicable agreement on finances, even though more than a quarter said they wished they had. Of the 78% who ended their marriages amicably, almost all said that their finances now needed a makeover. On average divorcees who contacted the UK Insolvency Helpline had £15,000 to £25,000 in unsecured debts, while half of people had debts of £2,400 to £6,000 due to the costs of setting up a new home. Many of the people interviewed had chosen to enter into an Individual Voluntary Arrangement (IVA ) which is a softer alternative to bankruptcy and can massively reduce debt levels. When it came to practical advice, more than half of the 320 people questioned said they had turned to The UK Insolvency Helpline for financial guidance after speaking to their solicitors.

Many relied on Citizen Advice Bureaux, some turned to friends, others went to counsellors or used support organisations such as Divorceaid. Ian Richards from the UK Insolvency Helpline said, "We have launched the "Debts And Divorce Campaign" to try and understand our callers' spending patterns so that we can help them plan for the future. By using the divorceaid.co.uk website, people should be able to keep their legal costs down as they are guided through the whole divorce process. Christina Tait, from Divorce Aid says, "This could possibly assist some people in saving their relationship or at least bringing it to a more peaceful and less costly closure but whatever happens, Divorce Aid aims to provide support. We will take you through emotional, child and health issues, as well as explaining the legal and financial implications."

Statistics - What causes debt?

• Divorce and separation - 52%
• Bereavement - 18%
• Ill Health - 15%
• Loss of work - 10%
• Disability - 5%

Case Study

Louise and William Davies recently divorced. The terms of the divorce decree stated that William would pay the balances on their three joint credit cards and two loan accounts, amounting to £22,000. Months later, after William decided to go bankrupt, all three creditors contacted Louise for payment. She referred them to the divorce decree, insisting that she was not responsible for the accounts. The creditors correctly stated that they were not parties to the terms of the divorce and that Louise was still legally responsible for paying off the couple's joint accounts.

Louise later found out that the late payments appeared on her credit report and as such entered into an IVA - Individual Voluntary Arrangement. (IVA - A softer alternative to bankruptcy, which can massively reduce debts.) In most scenarios, the date of separation in a final judgment or decree officially determines when you are no longer responsible for the debts that your spouse has incurred. Make sure all joint accounts are closed or divided when you separate. Make sure, too, that you divide all debts and know who is responsible for each one. Before doing so, set up an account in your name and make sure that you qualify for credit, since sometimes your individual credit rating can be affected if you close an account. If you are unable to trust each other during the separation, contact all service providers (gas, council tax, solicitors, dentists, etc.) and inform them in writing that if any work is being done for your spouse, you will not be responsible for the bills.

Even if all these precautions are taken, it is still possible that creditors might come after you seeking payment for bills your spouse may have incurred. Thus the more accounts you can close, the better off you are but always be guided by your solicitor. You may well be responsible for debts your spouse runs up for the necessities of life during the separation period. These include housing, food, clothes, the children's expenses, and medical expenses. The more you can agree together, the easier the separation could be.

Top tips for rebuilding your credit history

You may want to look closely at issues involving credit. Understanding the different kinds of credit accounts opened during a marriage may help illuminate the potential benefits-and pitfalls-of each. Whether you are married or single, you alone are responsible for paying off the debt. The account will appear on your credit report, and may appear on the credit report of any "authorised" user. If you're not employed outside the home, work part-time, or have a low-paid job, it may be difficult to demonstrate a strong financial picture without your spouse's income. But if you open an account in your name and are responsible, no one can negatively affect your credit record.

No matter who handles the household bills, you and your spouse are responsible for seeing that debts are paid. A creditor who reports the credit history of a joint account to credit bureaux must report it in both names Because two people applied together for the credit, each is responsible for the debt. This is true even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up bills and don't pay them can damage their ex-partner's credit histories on jointly held accounts. If you're considering divorce or separation, pay special attention to the status of your credit accounts. If you maintain joint accounts during this time, it's important to make regular payments so your credit record won't suffer. As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it.

If you divorce, you may want to close joint accounts or accounts in which your former spouse was an authorised user. Or ask the creditor to convert these accounts to individual accounts. A creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.

For couples thinking of divorce the debt advice team can discuss official ways of debt such as an IVA.

Some of the advice team workers have actually come through divorce so can really empathize with clients on all topic relating to bankruptcy.

The advice team workers can provide advice for people who are divorcing or planning to divorce but also for men and women who have already divorced on credit repair.

Divorce Aid can assist clients through the process of divorce and the emotions associated with it. The website divorceaid.co.uk is comprehensive, well written in plain language that is east to read.

We highly recommend speaking to our advice team about different financial scenarios that a couple may go through on 0800 074 6918. The highly trained money advice team can advise anyone who is in a troubled relationship, currently going through or post-divorce, or those who are having doubts about their marriage or relationship.

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