HIDDEN debt can lead to acrimony, says Sheila Byth
‘When poverty comes through the door, love flies out the window,” says to the old saw.
But when poverty comes through the door, specifically, in the form of high levels of household debt about which one of the spouses or partners is unaware, then the couple’s already fraught relationship is likely to be strained even further, especially once a decision has been made to separate for good.
Within marriages or established, long-term relationships, spouses or partners who have been unaware about singly or jointly incurred debt find themselves at a distinct disadvantage and at the mercy of their “other halves” when the level of debt eventually becomes apparent.
Picture the following scenario, which is not at all untypical of the cases brought before lawyers. A person, recently estranged from wife or husband, learns about large credit card and store card debts built up by the other party only after the separation between them has officially taken place – and is astonished that she or he might be held jointly responsible, despite being unaware what was happening under her or her nose.
It might also come as an unpleasant surprise when the spouse who ran up the debt might genuinely accuse the other party of contrived ignorance of the situation.
Thus a high level of indebtedness and fierce disagreement over who was actually responsible tends to aggravate already existing mistrust and resentment. Consequently, negotiations between the two parties get mired in petty bickering and legal costs tend to increase.
And that’s before they encounter legal complexities too. For example, if the couple are married and the debt was incurred before they separated, it could be a shared responsibility despite only one party’s name being on the bills, albeit cohabitants’ rights are far more limited than those of spouses. However, exceptions do exist – eg if debts have been incurred by the “guilty party” to fund addictions or to pursue an extra-marital relationship.
Death (or serious mental incapacity through, for example, dementia) can also result in similar problems if details of debts (or financial assets like Isas or pension pots) have been hidden from their other half. Such problems do arise even in circumstances where the couple had been happily married for many years and in all other respects had shared everything.
Therefore an “action plan” that could negate many of the aforementioned problems should be looked at in a positive rather than a negative light.
The key points of such a plan should be as follows:
• Agree to discuss finances regularly and openly, which includes not being secretive about mail addressed to one half but obviously with implications for the other half.
• Draw up a list of all assets and liabilities (held either singly or jointly) and keep it safe.
• Contact an independent financial advisor or chartered financial planner (for whose services a fee will be payable) to assist with balancing current assets and liabilities and budgeting for the future.
• If the books don’t balance, obtain debt advice from a professional (usually obtainable free of charge from one’s local Citizen’s Advice Bureau).
• Instruct a solicitor to draw up a Will and a Power of Attorney – to negate any “grey areas” and ensure each party’s wish with regard to assets is carried out in the event of death or serious mental incapacity.
While the above plan will not absolutely guarantee an absence of problems, it provides the basis for enacting a series of sensible safeguards which should alleviate much of the distress (including unknown indebtedness) that comes with separation.
Almost certainly, the cost will be miniscule compared with the financial implications of sweeping the problems under the carpet and simply hoping they will go away.
• Sheila Byth is a divorce lawyer, collaborative practitioner and mediator with Blackadders LLP, Edinburgh. www.blackadders.co.uk