Matrimonial Debt 6th, April , 2021

Who shoulders the cost of Matrimonial Debt?

The Pandemic has not treated everybody equally from a financial perspective. Some people have remained in employment, on full pay, with not much to spend their money on. For obvious reasons, their savings have increased. Even those on furlough receiving 80% of their income will come out of lockdown in an advantageous financial position.

For others who have lost their jobs or their businesses, the situation is completely different. Rather than accumulating assets they have accumulated debt.

After lockdown, the same laws and processes that existed before will apply if a couple decides to separate.

The law in Scotland says that on separation, the net value of the assets shall be shared, fairly, between the parties. This is the value of the property after deduction of any debts incurred by either of the parties.

There is often a focus on how the matrimonial assets will be shared but, as will be understood from the above definition, the manner by which the matrimonial debt is apportioned is of vital importance.

There are two issues at stake; in the first place, the value of the debt has to be set against the value of the assets to achieve the NET value. In the second place, the important question of who is going to be responsible for paying off the debt in the future has to be thought about carefully.

From a practical point of view, the biggest debt the parties owe is usually their mortgage. This type of debt is of course set off against the value of the matrimonial home.

If the house is sold the mortgage will be paid off. If the house is to be transferred then presumably the person who is staying in the property will continue to pay the mortgage payments. But can they afford to do so and will the lender agree? And what happens if the value of the
property is less than the sum owed to the lender? Who has the responsibility to pay off the outstanding sum?

All debts existing at the date of separation have to be considered. Although debt may be in one person’s sole name, it is still regarded as a matrimonial debt and comes into the calculation. That said it is important to remember that although the debt may be a matrimonial debt in the eyes of the law if the debt is in only one person’s name that will be the person who is pursued by the creditor.

For that reason, it is essential as part of the overall financial agreement to make sure that it is clear who is to be responsible for the debt in the future. The best way to do that is to state clearly in the Separation Agreement (a contract between the parties which sets out the terms of any agreement) which party will have the obligation to repay the debt.

It will not always be the case that each party will be equally responsible for the matrimonial debt. If one party has incurred debt without the other knowing or if one party has repaid debt before the date of separation these are factors which could amount to special circumstances and justify an unequal split of the debt or perhaps more accurately justify an unequal sharing of the net matrimonial property.

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