Divorce and separation settlements can be hard to strike at the best of times but when the couple or one of the partners has debts, the situation can be even harder to deal with. Such couples generally want to just divide the debts and move on with their lives but in some cases they can’t. This has a devastating impact, adding greatly to the trauma of separation.
Dividing Debts in Separation or Divorce
For the debt to be divided by the courts or even through mediation there has to be agreement on the exact value of negative equity or the resale value of any joint property the couple owns. There also has to be an ability or willingness on one or both of the parties to take on all or part of the debt.
Where decisions are made as to how to divide the debt, they meet the next stumbling block – the failure of the banks to co-operate or act honourably in this process. This is halting separation proceedings entirely in many cases and leaving parents and children with no homes in others.
It’s not so bad if you are on a higher income, and one partner can afford to rent while the other remains in the family home, or both can rent if the home is sold to discharge the bank debt. If you are on a low income, you can apply for social housing or avail of rent allowance to help with costs.
It’s those in the middle who are really stuck. Sometimes a couple whose relationship has broken down are forced to remain in the family home because they can’t afford any alternative – and children can be caught up in the middle of all this. When property values were high and there was enough equity, dividing the assets offered the partner leaving the home enough to secure a deposit on a new house or at least to rent.
Negative Equity in Separation or Divorce
Today, about 75% of those I deal with are in complete negative equity, and all are dependent on the banks in their decision making. For example, in the case of a family home with a mortgage of €250k, and both partners working on middle incomes, the bank may agree to sell the home for €180k, leaving each partner with a debt of €35k, no home, no means to buy a home, and children to look after. But at least they will have limited income to rent a home, and the means to begin moving on with their lives.
However, if the bank refuses to agree a mechanism to divide the debt, people remain tied together by the burden of a joint debt, which they struggle to pay. The prospect of a clean break in their separation remains a distant hope only, and very often they are left living together in very difficult and stressful situations, which do not benefit them or their children.
In the interests of families and children, the banks need to have a clear and consistent policy of co-operating with the courts and with mortgage holders and borrowers in the case of divorce and separation. At the least, a relationship breakdown is a time of crisis in anyone’s life and coupled with high debt levels, it has become a nightmare for many. It’s time to ease the burden a little…..
This blog is adapted from a column contributed to The Irish Times in 2012.
If you need advice or support on any of the issues raised above, please call Alan Finnerty on 01 637 6200. Or you can email him at firstname.lastname@example.org
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