Money worries are the biggest reason for marriages ending in the UK. It stands to reason that settling of finances in a divorce is no smooth ride either. Here are some common questions and answers to help you financially survive a divorce in the UK.
What is considered marital debt?
Barring child expenses, the financials of divorce largely centre on debt. Typically, the person who signed the credit agreement, such as a mortgage or joint credit card, is accountable. If both signed, it’s a joint accountability.
How is debt divided in divorce?
Generally, courts will assume that shared debts incurred during a marriage are on behalf of the family, and therefore subject to equal distribution. But courts will examine any contested debt based on if the debt occurred during, before or after the marriage and the beneficiaries.
Are you responsible for your spouse's credit card debt?
Credit card debt or personal debt under one person’s name is their personal liability, even if it was used to a shared benefit or benefit of others. This goes both ways. If your name is not on an ex-spouses’ account, it should not be your responsibility.
What about maintenance costs?
Whenever possible, courts would rather see divorcing couples achieve a clean break so there are no ongoing financial ties. If there are no children to care for, or other very good reasons, courts are increasingly hesitant to mandate a maintenance payment, which are regular payments by the person with the higher income to help with the other’s living costs. One person can also pay a lump sum or buy a property to live in to get a clean break, instead of a monthly income. Courts do not need to be involved with this decision if both parties mutually agree to a financial arrangement.
Struggling financially after a divorce: steps to recovery
Divorce will not ruin your life forever. But there will likely be periods of difficulty that affect you financially and feel impossible to survive. You are not alone. Divorce destroys finances for many people, and many people find themselves in a position of starting over after divorce with no money, high debt, a damaged credit score, and a loss of property. This is all manageable. It will take time but you can get back on your feet with help from these suggestions:
Focus on housing
If you are keeping the once jointly-owned house in a divorce, the process of changing ownership can vary depending on where you live in the UK, and will certainly involve a lot of calls and paperwork with your mortgage lender. The sooner this is done, the better.
If you lost your home in the divorce, or unable to keep up payments for the home you won in the divorce, it’s important to get a sustainable long-term housing solution underway. Look to rent or buy a home within your means, and consider shared-ownership properties to reduce the maintenance burden. Do not cripple yourself in housing debt for sentimental reasons.
Untangle and increase your credit score
According to Equifax, while changing the legal status of a relationship does not directly impact a person’s credit score, indirectly, the financial fallout of the marriage might. When a couple apply for a shared credit agreement, such as a mortgage, this “financial association” is reflected in a credit score. Financial actions from your ex partner will therefore impact your credit, for better or worse. Unlinking that financial association from your credit report requires closing all shared accounts, or converting them to individual accounts. With that done, you may need to proactively contact the credit reference agencies and request the financial link is severed from your credit report, and also ensure there are any missed financial associations you need to manage.
If your credit score was damaged in the process of divorce, or was never great to begin with, it’s not too late to improve it with these tips about how to build your credit score.
Avoid emotional or vengeful spending
Don’t make short-term decisions that could be bad for you or your ex-partner in the long term. Therapeutic shopping is a particularly dangerous way to deal with the stresses of divorce, as mounting credit card debt can take years to pay off. And courts will not look fondly upon any vengeful or unfair spending designed to hinder an ex-partner in a divorce.
Update your status and double-check your tax situation
Life admin is always a pain but it is especially important to ensure your papers are in order during and after a divorce. That way you are not operating under any false assumptions that could add financial hardship in the future. This includes checking your tax situation and updating the HMRC about the change in relationship status, as it may change your tax code and entitle you to different benefits. Furthermore, make sure that your health insurance, life insurance and critical illness options are in order, and that your spouse is no longer linked with these policies.
Live below your means
Starting over financially after a divorce may leave you feeling disorientated about finances. After a divorce you may start to realise the economies of scare you enjoyed from two people sharing costs. Now that it is just one, some things are simply out of financial reach. It’s time to reset expectations and your spending habits. Money Dashboard can help you make these calculations, determining what you need to set aside each month for essential spending and budget for non-essentials. It can also help you design a savings plan, and show you how your finances might change if you downsized your home, or started renting, or any other changes you are considering.
Financially surviving a divorce is possible, it just takes time and planning. The sooner you set the right foundation to financially recover, the smoother the process will be. So get your paperwork in order and make sure you understand which debts are yours, theirs, and shared so you can plan accordingly.