How to cope with debts and manage finance after separation?
Divorce or separation can be a very painful and stressful process. It’s not only about dividing the wealth but also about sharing the burden of existing debts. Research shows that debt is one of the main reasons for divorce, which can quickly increase when two incomes become one.
According to StepChange charity, women are twice as likely as men to get into debt after separation or divorce. Less financial freedom and increased expenses can be difficult to cope with and in some cases may lead into personal bankruptcy.
Here are some most common questions and answers about how to cope with your debts and how to manage joint loans after divorce.
Who is liable to pay back existing debts after divorce?
You are not liable to pay back your spouse’s personal credit card debt, loan or overdraft if it is not under your name. The liable person is the one who borrowed the money under their name. If the loan was taken out to cover family expenses, and was used by a few people, the person responsible for paying it back is still the one who took out the loan under their name.
Who is liable to repay joint debt after divorce?
People often think that if they have taken a joint loan, both partners are liable for paying back their half only. The truth is that both individuals are equally responsible for repaying the whole amount.
All joint debts such as joint mortgage, personal loan or overdraft have to be repaid by either party in full. If one of the partners, for any reason, can’t pay back their share the bank has a right to ask the other partner to repay all of the borrowed amount in full. For example, if one of the partners has been made bankrupt, and has no income to repay their joint loan, the other partner needs to cover the full amount.
What can you do if your ex-partner is creating more debt?
If you have a joint debt and your ex-partner refuses to pay their share you need to call your bank and inform them about your situation. The bank might agree to put some restrictions on your bank account to stop your ex-partner from increasing your joint debts. They might be willing to accept lower payments if you are not able to cover the full amount.
How to reduce your bills after separation?
Draw a budget. The first step you should take after separation is assess your financial situation and draw a budget. What is your current income and how much money do you need to cover your everyday expenses and household bills?
Once you have a budget which covers all priority debts and essential bills you can figure out how much money is left. If possible try to cut back on your spending to see how much you could save for emergency expenses. Having a safety net can really help to avoid debt when unexpected situations arise.
Sort out your Council Tax Bills. Council tax debt is one of the highest debts in the country that often leads to a personal bankruptcy. It is considered to be a priority debt and is vital to be paid. If you are having money issues don’t leave your council tax bill unpaid. Contact your local council and tell them about your situation.
You might be entitled for a 25% council tax discount if you are living on your own, with a student or a disabled person. If you are on low income council might be able to offer you a council tax reduction.
Transfer your balance to reduce Credit Card Debt. Do you have any credit cards with a high interest rate? Consider switching your current credit card to a lower or 0% APR. It will help you to pay back your existing credit card debt quicker and will help to save a bit on the existing interest rates. Bear in mind that 0% APR is often available for a fixed time only so it is important to shop around for the better deals before that period ends.
Consider cancelling your monthly subscriptions. Are you a member of a costly gym or an exclusive country club that you rarely go to? Do you have any monthly magazine or special box subscriptions that you hardly ever use? Do you really need cable TV, Sky, Netflix, Amazon Prime and other streaming services at once? How much entertainment do you actually watch on your laptop and TV?
Try to find cheaper alternatives or even cancelling your memberships and see if you really miss them. Maybe £50- £100 in your pocket can be spent more wisely or put into savings account instead?
Review your financial services. Have a look through all of your financial products and insurance claims and see if you really need the coverage. For example if you have bought a kettle worth £50 do you really need a £10 insurance for the next 3 years?
Shop smarter and save money on food. Try to reduce eating out options and cook your own meals through the week. It will cost you a lot less and you will be able to enjoy a slimmer waistline. Take-aways and restaurant meals can save you a lot of time but can also add a high bill to your monthly expenses. There are a number of quick and healthy recipes available on websites such as BBC Good Food and All Recipes.
Consider buying supermarket own branded goods where possible. Compare the ingredients and see how much salt, sugar and saturates does the product contain. You will be surprised how similar some of the products taste and how much you can save.
Buy some of the essential items in bulk or bigger packaging. It will help you to save money in a long run and spread the cost through the months. A number of supermarkets are offering price comparison tools on their websites and even in stores. Research online which supermarket offers the best price on groceries that week and see what deals are available on household essentials.
It is important to remember that help is always at hand and there are a number of organizations that are able to offer their services free of charge. If you find it hard to cope with your finances after divorce contact organizations such as StepChange, Citizens Advice Bureau or Money Advice Scotland.