managing finances through divorce
Throughout a marriage, people often open accounts together, enter debt together, and purchase assets together; whether it be for convenience, or as a sign of commitment. When the marriage is over and the process of divorce or dissolution begins, people need to understand how to manage their finances in order to take control and get their life back on track.
Some people will be able to work out an agreement and avoid going to court. If an agreement is reached, a consent order from the court will make it legally binding. As break ups are a stressful time for most, this might not happen.
If couples can’t agree, they must first try mediation, where an impartial person will discuss the issues and try and find a solution for both parties. Finally, the couple can ask the court to decide using a financial order. This costs £255 and is completely separate from the divorce.
Dividing bank accounts
Depending on the nature of the break up, it might be necessary to freeze or close down joint bank accounts. Some couples use these accounts as a way to pay the household bills, while others use them as their own personal account; the only difference being their partner can also access it.
Both parties can access the account, and are legally entitled to withdraw some or all of the funds within it. They are also both liable for any debts, such as an overdraft, run up on the account. As such, in the majority of cases, it’s best to prevent any misuse and close the account.
If there are funds in the account, both parties may agree on how to split the funds. However, in the event that there is a disagreement, the bank can freeze the account until it is decided how assets will be divided up as part of the financial settlement.
When working through a divorce, as well as considering the past, people need to start afresh to enable them to carry on with their new lives.
Set up a new current account, one that no one else can access, and ensure that all income is paid into it. This means wages or salary, benefits, and anything else.
Debt during divorce
As previously mentioned, joint finances also means joint debts. This rule applies to any credit agreements with both parties’ names on; even if it was the other party that ran up the debt. Just as with bank accounts, it’s important to close down credit accounts too, perhaps even more so.
With something like a personal loan, where the credit line and monthly repayments are fixed, it needs to be decided who is making the payment. If the payments are late or missed, it will affect both parties’ credit ratings. However, if the lender cannot obtain the payment from one party, they will chase the other for the full amount.
More debt can be run up on joint credit cards, store cards, and overdrafts, so it’s even more important that the accounts are frozen or closed down. Again, both parties are liable for the debt, and the lender will get the funds from whichever party is more likely to pay up.
Many credit cards are not actually joint, but in one party’s name, with the other as a second cardholder. In this case, the main cardholder and account holder is liable for the any debt run up on the card, even if it was accrued by the second cardholder.
Splitting joint assets
The main asset any married couple owns is their family home. The property will need to valued, and that value agreed by both parties. If they don’t agree, the court will obtain a report from a local estate agent.
In many cases the house is only registered in the name of one spouse. If this is the case, the second party would be advised to register an interest in the property with the Land Registry; preventing the owner from selling up.
Dividing up major assets, such as the family home, investment property, and other investments, can be a very complicated and messy process. For people in this situation, it is best to seek professional legal advice.
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