My Partner/Spouse is Insolvent
If I have been asked once, I have been asked hundreds of times, what happens when one partner or spouse has debts they cannot afford to pay, and they either have no joint assets with anyone, and the accounts are in just their name.
They do however have a spouse or partner, how will being insolvent affect the “non-financially” involved partner or spouse.
They are in essence a “financially injured or innocent spouse”.
As long as the accounts are in just one person’s name, the other partner or spouse is not responsible in any way for the debt(s).
Collection agencies may make threats and state both parties need to pay, but again, only the person whose name is on the account is liable.
Some questions I have received regarding this:
Q: I am moving in with my partner and they have a large amount of debt. For now they seem to be able to afford the repayments. Should they default, will I be responsible as we are living together?
A: No, you would not be responsible for the accounts just because you are living together. Only the person whose name is on the accounts is responsible.
Q: My partner and I are splitting up and we have a credit card and a personal loan that is in both are names. What can we do for future payments?
A: Splitting up a relationship is very difficult, and when you toss in jointly held accounts, it can become even more difficult.
As you may be aware, both of you are responsible for the accounts.
You may decide one will pay one account and one will pay the other, however, you need to be sure the accounts are paid. Which means you may wish to monitor the accounts on a monthly basis.
Also, if you have any joint chequing or savings accounts, you will want to each open your own account.
There are many ideas on how to pay the joint accounts, the main thing is that your bank and creditors have updated details for you, and you make sure the accounts are paid. If one ex misses a payment, you need to know immediately.
Q: I took out a loan for my spouse to start a business. We are now getting a divorce and the business is closing. Can I hold my ex to paying this loan?
A: You may wish to seek legal advice on this matter, but technically in the eyes of the bank or lender, you are the one responsible for the loan.
Even if in your divorce agreement your ex states they will pay the loan, the original agreement with the bank or lender takes precedent and you are ultimately the one who is responsible.
Let’s look at some other aspects that can complicate matters.
In this example, a couple have been living together for years, one person in the relationship owns a property they both live in. And there is substantial equity.
The other person in the relationship has many debts and is struggling to repay them and is technically insolvent and facing bankruptcy.
All the accounts of the person facing bankruptcy are in just their name. However, they have been contributing to the mortgage on the property and the upkeep on the property for many years.
This is where “beneficial interest” could pose an issue if they were to go bankrupt.
Beneficial interest is where even though an asset, such as a property, may not be in the person who is insolvent or bankrupt’s name, they have contributed in some way to the property or asset.
This could be through various means:
* Contributing to the mortgage payment.
* Paying the council tax.
* Contributing to maintenance and upkeep.
* Having paid part or all of the initial deposit for the property.
Showing or proving someone has a beneficial interest in a property can be difficult, but not so if the person has been paying the mortgage or some other very obvious easy to show means.
However, if the person who does own the property has documentation in the form of statements, and any receipts that may be needed to show they have made all the payments and paid any bills associated with the property and the person going bankrupt has only paid rent or housekeeping, then this can help to defeat the issue of the person going bankrupt having any beneficial interest in the property.
Of course if there is no equity in any property in question, all this can be a moot point. But it is something to be aware of.
Having jointly held assets, again such as a property in both names, and one person is insolvent or going bankrupt, or just facing CCJ’s, can be a real issue for both parties.
An example would be a couple own a property together which has some equity in it. One of the partners has substantial debt and is looking at going bankrupt, or is being threatened with legal action against them by their creditors in the form of CCJ’s.
The debts/account are only in the one partner’s name.
First, as the accounts are only in one person’s name, they are the only one that is responsible, however, by having joint assets, such as the property, matter become complicated.
One thing that has to be noted here form the beginning is that the partner who is not in debt does have rights, and that their share of any equity, or other assets is just that, theirs, and will not be taken from them.
Even knowing this and having that right, does not change the complexity of the matter.
Bankruptcy: How property is handled in a bankruptcy situation can be complicated, especially if the property is jointly held and one of the parties is not going bankrupt.
First, there need to be sufficient equity in the property to make the sale of the property worth while to the creditors involved.
Secondly, the non-bankrupt partner’s portion of any equity is theirs. In some instances the Official Receiver may allow the non-bankrupt partner/spouse to buy-out the bankrupt’s portion of any equity. In essence paying that amount to the bankruptcy to preserve the property.
There ar many factors that can influence as to if the OR would force the sale of the property:
* Amount of Equity: How much equity is in the property and what portion of this belongs to the bankrupt.
* Saleability: Can the property be sold in the state it is in. Are there other properties in the area for sale, would it sell quickly.
* Family Matters: Are there children involved, who would be disrupted.
CCJ’s: CCJ’s or County Court Judgments are the legal arm of how a creditor can attempt to collect a debt.
If a creditor obtains a CJ against someone who owes them money, the CCJ does not affect the partner/spouse who is not on the account. The CCJ is only against the debtor/borrower.
However, if there is jointly held property involved, and the creditors seeks an Enforcement Order in the form of a Charging Order, this can affect the partner who is on the property, but not involved in the debt.
A Charging Order turns an unsecured debt into a secured one by securing the debt against the property. When the property is remortgaged or sold, the order must be paid.
A creditor could look to force the sale of the property through the order, but this would be rare. The courts are not looking to make people homeless to pay off a debt.
The issue is that the person who is not in debt and not involved, now becomes involved as the debt will get paid out of the sale of the property.
Debts in Other Countries
I recently was asked the question by someone who had moved from the EU to the UK, and had left a considerable sum of debt in the EU many years ago.
They now live here in the UK, and own property with their partner.
Recently they were contacted by a collection agency in the EU about repaying the debt(s) they owed. These accounts in the EU were jointly held by them and their ex partner.
Their concerns were can the debt be collected in the UK, and what well happen to their property here in the UK. In addition, why does the collection agency not chase their ex, who is also on the account(s), for the debts.
I cannot state as to why the collection agency does not chase the ex, who is also on the loan, for payment. They may be doing just that and we do not know.
The issues are the collection agencies authorities here in the UK. Which they may have a partner company here in the UK, or they may assign the debt out to be collected here. If so, all of the above discussed issues of owning property together come into play.
They could look to make the debtor bankrupt, seek a CCJ, etc.
Property is not the only asset a person may have, and could be in joint names.
Property is easy to determine who owns it though. The mortgage and/or land registry aids in showing ownership.
In bankruptcy the OR is not going to take many personal possessions or any tools of the trade needed for someone to work.
However, if you and your partner/spouse own expensive antiques, pieces of art, cars, anything of real value, even though these items may be jointly owned, they could be sold for the bankruptcy.
There is a few things that have to be done first:
* Establish a value for the items.
* Is there a market to sell them to.
* Establish ownership, show the bankrupt owns a portion of the item(s).
Establishing ownership can prove difficult. The non-bankrupt partner/spouse could claim full ownership, and may need to prove this.
In addition, the OR can allow the non-bankrupt partner to buy-out any value to keep the item(s), just as with a property.
As you can see, these matters can be complicated, and dealt with on an individual basis.