Debt, divorce and the Family Court
As the festive period draws ever closer, many families will be stretching their finances to breaking point to pay for Christmas, with more than a…
As the festive period draws ever closer, many families will be stretching their finances to breaking point to pay for Christmas, with more than a third of Britons now estimated to go into debt to pay for presents, according to a poll conducted by the Money Advice Trust.
For any couple in the process of divorce, debts can be a tricky area. The way in which debts are treated by the Family Court will depend on a number of factors, as the court strives to achieve a fair solution for both parties. The person in whose name the debt is can have a minimal impact in proceedings as the Family Court has the power to divide assets in such a way that debts are fully accounted for when reaching a fair deal, but of course creditors to whom the money is owed have legal redress against only the named debtor themselves, regardless of whether the Family Court has ordered both parties to contribute towards paying off a debt.
The Family Court will look at whether the debt is ‘matrimonial’ which would give it full status for consideration on a financial settlement on divorce. Key features of a matrimonial debt include the debt having arisen during the course of the marriage and both parties having been likely to have benefitted from it. As such it is arguably fair for them to share responsibility for its payment. However, if a debt is ‘non-matrimonial’, perhaps arising prior to the marital relationship, it may be arguable that it is fair for the debtor to remain solely responsible for that rather than for both parties to be expected to share responsibility for it.
The purpose of the debt is also relevant. For example, where a wife has spent money on a credit card to buy Christmas presents for the family, it is likely to be classed as matrimonial debt that should be shared by the parties. But if a husband has incurred credit card debt buying diamond earrings for his new girlfriend, the court is, understandably, far more likely to make the husband take responsibility for that.
When might a court deem expenditure to be so unreasonable that the money spent is ‘added back’ to the financial resources, meaning that on paper at least, there are more assets available to be divided by the court, usually in the non-spender’s favour? Case law dictates that expenditure has to be ‘wanton’ and ‘reckless’ and as such, much more than the usual run of expenses. Expenditure has to be extreme in the context of the resources available to the family.
Specialist legal advice should be taken about debt and how it will be treated on divorce, and often importantly, what can be done to stop or reduce debt from continuing to be accrued. It is also important to seek help from experts about debt management/consolidation such as the Citizens Advice Bureau.
Matthew Taylor is a Solicitor in the family law team