One of the biggest questions during divorce is the division of assets. And this process includes mortgages & debt. Even though they aren’t an asset, they still need to be considered during the divorce financial settlement. This may include a house mortgage or a credit card debt.
So, what happens to it during divorce and what can you expect? Continue reading while we provide our expert opinion on mortgage and debt during divorce.
Do you become liable for your ex-partner’s debts?
Usually, you’re only responsible for the debt that is signed in your name. But it tends to get trickier than that during a divorce.
Debts may be split if they’re determined as ‘matrimonial debt’ – which means they were taken out for the benefit of both parties. For example, you bought a family car that both partners use, but it’s only in your ex’s name. The court can consider that a matrimonial debt and order both parties to pay their fair share of it.
Moreover, the court begins the divorce proceedings with the assumption that all the debt collected during a marriage is matrimonial. So, in certain cases, it can be determined that all debt needs to be split. Ignoring the fact that it benefited one party more.
Important note, if some of the assets remain ‘joint’ and let’s say your ex gets into a credit card debt they can’t repay. Lenders can and will consider the joint assets while recovering loans. For instance, if you’re the one who remains living in the family house, but your ex-spouse still owns half of it – lenders may try claiming it.
Do you need to keep making joint mortgage/debt payments during a divorce?
Always try to keep on top of your repayments. Whether you’re still together or going through a divorce – it doesn’t affect the bottom line for the loaner. Lack of payments can damage your credit score and even result in losing your assets, in the process of debt collection.
Co-signed debts exercise ‘joint and several liability’. This means that both parties are liable for the full amount that is owed. So, if your ex is refusing to pay – you can’t just pay half of the payment. Unfortunately, the lender has the right to request the full amount from you.
The payments on joint debts can continue after the divorce is finalised. But if your ex refuses to cooperate, you may contact the lender to ask for their help.
Additionally, there is an exception regarding joint credit cards. In cases in which you’re the secondary card holder – you’re not legally liable for the debt. Since in legal terms, ‘joint’ credit accounts don’t exist. Although, if you’re the primary credit card holder, be careful as you’re the only person legally liable to pay the debt back.
How can the court affect the division of debt?
Considering that the court can rule on how your marital assets are divided – they may also have a say on the division of debt. This can involve:
- Joint debts – debt that was co-signed by both parties (e.g., mortgage, car loan, joint bank account)
- Matrimonial debts – debt that is one of the spouse’s names but was taken out for the benefit of both parties
- Debts that were taken out as a ‘joined debt’ but were only beneficial to one party
- Debts that accumulate after separation
Although, you should keep in mind that the court’s decision can highly vary based on individual circumstances. They will look at which debt is matrimonial, and which isn’t. Additionally, it’s important to note, that the court can’t reassign who’s responsible for the debt.
How will divorce affect your house mortgage?
In most cases, a mortgage for a family home will be the largest debt remaining after a marriage. And if both parties have their names on the mortgage – you & your ex-spouse will remain responsible for making payments until an alternative solution has been reached.
Considering that a joint mortgage holds both parties equally liable until the debt is paid off. Regardless of the fact that you’re still living in the property or not.
Additionally, it’s a good practice to make your lender aware that you’re going through a divorce. In some cases, lenders can be sympathetic and give you a break from making payments or lower the amount for the time being.
How can you divide a mortgage after a divorce?
Reaching a mutual agreement on how to handle a mortgage is very important during a divorce. Especially in cases where the house mortgage is the largest debt.
So, what options do you have?
Sell the property
In cases where both parties are happy to move out of the property, you can sell the house and use the money to pay off the mortgage. It’s often the smoothest way to move on from a divorce.
If there is any money left after paying off the mortgage – it will be considered part of the marital pot and be divided between both parties. Whether it’s an equal division or not, is to be determined based on individual circumstances.
Continue with joint payments
If one party wants to remain living in the house, there is an option to continue paying off the mortgage together. This is usually a reasonable option when the mortgage is almost paid off or the relationship between you and your ex is on good terms.
It may also be the preferable option when there are children involved. Staying in the same family home the children grew up in may help with the emotional impact of the divorce.
Although, make sure you and your partner can afford to continue making payments after the divorce.
Buy the other party out of the mortgage
Another available option is to transfer the ownership of the house to one person. This will involve reassigning the mortgage to one name and that person will buy out the other party’s share of the house.
It’s important to note, that you’ll need to prove that the sole occupier will be able to pay off the mortgage by themselves to the lender. They’ll come up with a decision based on income and outgoings.
Sign a special order
Additionally, the court can issue Mesher or Martin orders to outline how to deal with the property.
- Mesher order – an order made by the court that stops the house from being sold for a predetermined period. Usually, when children are still living there (for example, until the children turn 18 years old). The order allows one party to stay living in the house, but both parties remain responsible for the mortgage.
- Martin order – an order that determines that one spouse can remain living in the property for the rest of their lives. While the house remains as joint property, with both spouses’ names as the owners. The property may only be sold once the spouse living there decides to move or dies.
What if my ex-partner creates more debt during divorce proceedings?
As long as the debt is in your ex-partner’s name and was used only for their benefit – you’re not liable for it. But in cases where the debt is co-signed, or your joint bank account balance goes into overdraft – both parties will be responsible for 100% of the debt.
Moreover, it may be a good idea to freeze your joint bank accounts if you’re struggling to agree on spending with your ex-spouse.
What happens to the unsecured debt?
As we’ve mentioned previously, all debt accumulated throughout the marriage is considered ‘matrimonial’ until proven otherwise. And this extends to ‘unsecured’ debt, like credit cards or car loans.
Most often, you and your ex-spouse will be left to determine who is responsible for what. But if an agreement can’t be reached – the court can make a ruling to award maintenance payments, but they can’t transfer the debt.
Although, anything related to credit cards is usually the responsibility of the cardholder. Even in cases where both parties could’ve used the card.
What happens when the property is in negative equity?
Negative equity means that the value of your house is less than the amount of the remaining mortgage & other outstanding loans. In that case, you can either sell or transfer the ownership of the property.
If you’re transferring the ownership – the spouse who is being bought out of the property will be required to make a payment to the lender to pay off their share of negative equity.
Whilst if you’re selling the property – the owned amount will be split between both parties.
Final thoughts
There are a lot of variables surrounding the division of debt during divorce. From individual factors to predetermined agreements – the best way to handle it is to reach out to a solicitor for advice.
Besides that, it’s crucial to remember that joint loans consider both parties responsible for repayments. So, make sure your lender is aware that you’re going through a divorce and don’t miss out on any payments. Since it can affect your credit score or worst-case scenario lead to you losing the property.
Lastly, if you’re going through the division of assets, it might be worthwhile to check out our guides on the treatment of inherited assets & how to deal with pensions during a divorce.
