The question “How are assets and debt divided in divorce?” is a common concern for separating spouses. Occasionally, the need for a clear answer leads to misconceptions — with the first being that everything is always divided equally when a relationship ends. The other is that a name on a contract proves sole ownership and excludes an item from being part of a settlement. In reality, the division of matrimonial assets and debts is often much less certain than this.
To truly appreciate how assets and debt are divided in a divorce there are a few factors that must first be understood. These include the tricky concept of matrimonial assets, and the courts’ options for ensuring both parties are treated fairly. Here, we’ll cover both in detail, giving you all the information you need to understand what might happen to your most valued possessions when divorce or dissolution become inevitable.
What Are Matrimonial Assets?
Determining which possessions are matrimonial is a crucial step towards understanding how assets are divided in divorce. Broadly, they are any items acquired during marriage, including domestic and overseas property, savings, and pension contributions. However, it’s important to realise that there isn’t always a clear distinction between assets brought into a relationship and those accrued during it.
While, theoretically, classifying assets as being the result of either joint or solo endeavour might seem easy, it’s more nuanced in practice. For example, during a high net worth divorce case, it might be necessary for a business to be classed as being either matrimonial or non-matrimonial. You might assume that if it was brought into the relationship by one spouse, it would automatically be regarded as theirs alone. However if, for example, the other spouse had sacrificed their career — or used joint savings — to help the business along, this mingling of personal finances and interests could lead to a company being divided among the two.
How are Assets Divided in Divorce
Although a 50/50 share might be regarded by the courts as ideal, it’s not a hard and fast rule. Instead, the question of how assets are divided in divorce is determined by what the courts see as being fair for both spouses. Alongside the needs of both parties being taken care of, and the best interests of children, both dictate the outcome more than anything else.
The concept underpinning a fair settlement is set out in Section 25 of the Matrimonial Causes Act 1975. This explains the reasons why the courts may choose to deviate from the 50/50 split, with the main factors being:
- The welfare of any children under the age of 18 is the primary consideration.
- Income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future.
- Financial needs, obligations, and responsibilities that each of the parties to the marriage has or is likely to have in the foreseeable future.
- Standard of living enjoyed by the family before the breakdown of the marriage.
- Age of each party in the marriage and the duration of the marriage.
These factors can have a huge impact on the question ‘How are assets divided in divorce?’. They show that the courts have broad discretion when approaching a separation, and that child arrangements, living conditions, and ongoing financial needs are all-important. The scope for ambiguity means that anyone going through divorce should speak to a family lawyer to ensure that nothing is overlooked in the pursuit of a positive outcome.
How are Debts Divided in a Divorce?
Marital/matrimonial debt is approached in much the same way as assets. Effectively, all finances are taken into account, with everything owed being key features of the overall financial picture. This means that even a debt in one person’s name could end up being seen as a shared liability, making it the responsibility of both spouses.
For anyone wondering how debts are divided in divorce, it’s crucial to understand that a matrimonial debt agreement isn’t always split neatly between parties. Additionally, while the courts can shift the liability for matrimonial debt from one spouse to both spouses, they won’t have the power to physically amend the names on the relevant documents. Instead, they might choose to subtract the debt amount from other assets, so that its monetary value is factored into the overall settlement.
Matrimonial Debts
In general terms, matrimonial debt is something that has benefitted both spouses in some way. It could be in both parties’ names, such as a residential mortgage, credit card, or other loan. Alternatively, it could be in one person’s name but be seen to have been enjoyed by both people.
Personal Debts
Broadly speaking, personal debt will only have been beneficial to one spouse. This means that if one party had taken out a loan on behalf of the other — and had not in any way benefited from it — it could be classed as being non-matrimonial. However, this can be difficult to prove, so is by no means assured.
Pre-Marital Debts in Divorce
Anyone contemplating, ‘How are assets and debt divided in divorce?’ will soon realise that a picture starts to emerge. Any assumptions that might have been made about ownership of debts and assets quickly prove to be unfounded and supposedly simple answers can quickly become more elusive.
Therefore, when it comes to long-term relationships, the origins of a liability become less relevant. By a certain point in time, a family lawyer could argue that most finances will have mingled, so all pre-marital debts may eventually become matrimonial — and jointly-owned — over the course of a longer relationship.
What Happens to a Mortgage in Divorce?
For many divorcing couples, the future of a mortgage is second only to child arrangements in the list of priorities. The options at your disposal will be impacted by future living arrangements, the amount of equity in the property, and the position of the bank. Much depends on personal circumstance — and what you both hope to achieve in the years to come.
Here are a few scenarios highlighting what could happen with a mortgage:
- Sale: The house could be put on the market, with any profit after the mortgage has been paid being divided among spouses.
- Buy Out: One party could choose to stay in the family home and buy out the other’s share in the property.
- Offset: If one party wants to stay, but can’t afford to buy out the other, they could sacrifice other assets such as cash, savings, or other investments such as overseas property to make up the difference in favour of the ‘departing’ spouse.
It’s important to note that not all mortgage companies will allow a joint agreement to be turned into a sole agreement. If you’re concerned about the future of property in divorce, you should consult with an established family lawyer as soon as possible to understand your options.
A Bespoke Approach From a People-First Law Firm
Asking the question, “How are assets and debt divided in a divorce?” could be your first step towards a fair separation. As we’ve established, there isn’t a simple formula that can help you find the answer. However, with the right legal guidance, the options at your disposal will become much clearer.
Lowry Legal is a family law firm with a specialism in high net worth divorce cases. We pride ourselves on our people-first ethos, and take the time to understand your circumstances in detail before devising a suitable strategy. This allows us to fully appreciate what is at stake, what you would like to get from the process, and any hurdles that might present themselves along the way.
A highly-regarded member of the Legal 500, we prioritise a collaborative approach where practical. This often paves the way for more productive conversations, which can reduce the need for costly litigation. However, we’ve built our reputation on getting results, which means we can tenaciously defend your interests in court if required.
To speak to a member of our team about your case, make an enquiry today.
