Dealing with debt

Since finances are often the cause of friction and arguments in marriage, it does not lessen when the parties are going through mediation on the way to divorce.

As a general rule a partner or spouse is not held responsible for debts incurred solely by the other party. Where there is a car loan or a credit card, the named person is legally responsible to pay it off.

Other bills such as council tax are a joint responsibility and the other party will remain liable if they remain unpaid. If the spouse who has left the house normally pays the council tax, the other party must contact the council as soon as possible to advise them of the new situation. There is likely to be a discounted bill if the household now has only one adult in residence.

If there are joint gas, electric or telephone bills then both spouses are responsible for the outstanding balance. Where a spouse wishes to take over a utility bill the provider company must be contacted and a meter reading taken if necessary. They are very used to dealing with couples going through divorce, and can be very understanding and helpful when approached.

When parties are in debt it is important to keep their creditors aware of any new or additional problems. Wherever possible if couples have a joint bank account and are going through a divorce they should close the account or transfer it into the name of one of them. Otherwise both parties will remain liable for any overdraft that occurs. Sometimes when the bank learns that there is a divorce underway they will contact the parties, and find out who is paying the current direct debits and standing orders.

How mediation can assist with debt

One of the main disputes brought to mediation is how to deal with joint or individual debt. If the debt has arisen under a joint loan or a joint overdraft, then the future credit rating of both parties will be affected. It is not always possible for parties to close joint accounts straight away or pay off joint loans, and it is important that each party knows the position with regard to these debts and their own credit rating.

The parties are encouraged to list of all current debts, especially credit cards.

Together they can make plans of how to reduce or eliminate those debts. Often credit card accounts where there is a secondary card holder are closed and separate accounts are opened and the card issuers are informed.

There are no joint credit cards, but sometimes each spouse will have a credit card relating to the same contract. What usually happens is that the principal cardholder, the person who made the original agreement, contacts the issuer of the card and explains the new situation.

The card issuer may ask for the second card to be destroyed and may set up a new account in one name. It is important that the other party knows that the other card is going to be cancelled so that there are no embarrassing situations arising when they are still using the card. The same situation will apply to store cards and charge cards.

Where there are loans a current balance statement is requested. Lenders are informed about the separation. The parties list the dates when the loans began and the reason why they were taken out, for example home improvements, or to pay for a holiday or a car.

Together they consider who has been making the payments and the monthly amounts involved and the amount currently owed to the creditor. Creditors are not bound by the terms of a divorce settlement, even if it says that one party will pay the debt. In the event of default the lender can still pursue the other person.

Where a financial advisor is already involved then they will have a thorough understanding of the financial situation. However the parties will often have not received advice and it may be necessary therefore for the mediator to assist the parties in finding a debt counsellor either through the Citizens Advice Bureau, or one of the government approved debt agencies.

If there is a family business then the accountant can be helpful in making parties aware of all the available tax allowances in order to maximise the use of assets and assist with managing the finances in the future.

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