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Dealing With Debt and Divorce

In spite of all the good intentions you might once have had, sometimes two people in a married relationship simply have to accept that it’s the best for both parties if the relationship is ended and the marriage dissolved.

A marriage (or civil partnership) is a legal joining of two people, and therefore if the two parties decide to legally seperate then they must apply to the court to do so.  This process is known as divorce, and while the divorce process is much simpler than it was many years ago it can still cause complications, particularly if the split isn’t amicably approached by one or both of the parties concerned.

You should think carefully before proceeding with a divorce.  As well as the emotional upheaval that is felt before, during and after such a split, many people find that a divorce is a very costly exercise.  Even if you are eligible for Legal Aid, you’re still expected to divide any financial (i.e savings, debts, pensions) and physical assets (i.e., house, car) in a manner that is fair and reasonable.

What Are The Steps To Divorce?

A divorce usually begins when one person decides to formally end the marriage, although in England & Wales you must have been married for more than one year before you’re allowed to apply for divorce.  Someone who initiates the divorce procedure is called the petitioner (because they need to file a petition to the court) and the other person is called the respondent (because they are required to respond to the court during the process).

You need a legal reason to get divorced and the divorce will proceed more smoothly if both parties agree on the reason for the divorce, so it would make sense to discuss this fully between yourselves.  If the respondent were to contest the decision in court this can result in expensive and unnecessary delays that could be avoided had you agreed this from the offset.

The petitioner normally appoints a solicitor to represent them during the divorce.  If there are children involved in the marriage, a formal arrangement to state how the children will be looked after during and after the divorce must be agreed before the petitioner then applies to the court to acknowledge that a divorce has been requested.

After the respondent has formally accepted the petition, the petitioner can then request to the court that a decree nisi is issued.  This is in effect a legal announcement of the intention to divorce.  Six weeks and one day after the degree nisi is issued, the petitioner may apply for a decree absolute, which is the legal order that finally dissolves the marriage. However, if there are complications and disagreements between parties this could take longer.

You may qualify for Legal Aid to assist you during your divorce, although depending on your circumstances you may have to repay this at some point in the future.  If you think you are eligible for legal aid, telephone Community Legal Advice on 0845 345 4345 (calls are not free).

Division Of Assets

When a couple divorce, they are expected to formalise their financial and support arrangements for any children, and then divide the assets that are held by both parties in a responsible and fair way.  As people have many different personal circumstances these days, there are no hard and fast rules employed by courts to assess how the assets of a marriage should be split.

Instead, a couple are encouraged to discuss and agree how assets should be divided between themselves, and the court will generally only become involved if it feels that the division as presented to the courts is significantly unfairly biased towards one person.  You could use a family lawyer or some other professional mediator to help you decide on how to split assets, but obviously if you can agree on a fair split yourselves then this works out much cheaper than if you needed professional help to agree on what assets you will each take from the marriage.

There aren’t any hard and fast rules when it comes to the division of assets, so the court generally hopes that a common sense agreement can be made in most cases.

Bank Accounts

Most married couples these days have a joint account that both use for joint purchases such as weekly groceries and consumables for the home.

Once you’ve both agreed to divorce, it may make sense to change any joint accounts and make other arrangements to deal with such expenses, as both parties are liable for any overdraft on the account.  If the divorce is not amicable, then it’s possible for an irate partner to run up an overdraft in that account with no intention of repaying it.  The other partner would then also be liable for repaying this.

In order to separate any money in any bank accounts, you’d need to discuss who is entitled to what.  Bear in mind who pays into the various accounts, money needed for children’s expenses, and any money that may have come to one person in particular such as inheritance money.

Child Maintenance

Child maintenance is a court-approved regular payment that the child’s main carer is paid by the other parent in order to help maintain the day-to-day care of a child whilst they are in full time education.  Child maintenance is intended to help to provide things like clothing, food, and leisure expenses, and such financial arrangements can also encourage both parents to stay actively connected to their child’s upbringing and development.

Contrary to popular belief, the amount paid as child maintenance is not usually set by a court at a fixed rate for everyone.  In fact you’re encouraged to agree a child support arrangement amicably between yourselves, and such an informal arrangement is commonly known as a ‘family arrangement’.

A child maintenance family arrangement needn’t be a set amount of money that’s paid regularly, an estranged parent may agree to take responsibility for school uniforms, sports equipment, leisure expenses or anything just so long as both parents agree to the arrangement.

If a family arrangement can’t be made, perhaps because the relationship between the parents is particularly bad, then you can still look at making a child maintenance arrangement through the Child Support Agency (CSA)

A Final Word…

This is a guide only.  As everyone’s circumstances are different, we unfortunately can’t cover all aspects of divorce in this guide but we hope we’ve given you some helpful information to get you started.

As a general rule, the more amicable you can proceed through the divorce process, the less it should cost you.  But even so, all divorces will involve some sort of expense and division of assets, so you need to be prepared for at least a temporary loss of income, or increased expenditure, or even a complete change in circumstances.

Written by Gemma on May 16th, 2012

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Understanding credit reports and how they are affected by DMPs

By James Jones from Experian

Credit checking is a mystery to some, so how does it work?

Basically, lenders obtain your consent to share and access information about your credit agreements through credit reference agencies like Experian. We combine these records with others, such as court judgments and insolvencies, to create what is called your credit report. We can produce a credit report for most adults in the UK.

You will usually give the lender permission to check your report when you apply for credit. If your report shows that you’re a reliable customer then it can help you get the credit you ask for. Most lenders use a technique called credit scoring (or ‘credit rating’) to help them work out the chances of you repaying credit, based on your credit report and any other information they have about you.

Despite frequent reports of an impending debt meltdown, the credit report data Experian hosts show that the vast majority of people continue to meet their credit repayments. The average Experian Credit Score – which is a guide you can get with your own credit report – is 783 out of 999* and this has increased steadily over the past few years. However, it’s clear that many people are worried about repaying their debts and, from the increasing workload of free debt advice providers like Payplan, that more people are seeking help.

If you’re in this boat, you might be considering a Debt Management Plan (DMP) to help get your debts under control. The state of your credit rating is likely to be way down your list of priorities, but you might still wonder what effect a DMP will have on your creditworthiness.

DMPs aren’t themselves registered on credit reports, but lenders can add a marker to your credit agreements to show you’re repaying your debts using a DMP. They can only do this for debts that haven’t already defaulted (see below), to demonstrate that you are proactively repaying your debts at an acceptable level.

The DMP marker should show your old and new monthly payments. Unfortunately, the monthly updates your lenders make will usually show the accounts falling into arrears (i.e. you getting behind with your original repayments). But as long as you keep up the new payments through your DMP, the arrears registered on your credit report will never exceed six months and, importantly, each account will stay out of default. Defaulted accounts show that the lender/borrower relationship has broken down, which is very bad news for credit scoring.

Once you complete your DMP, each account can either be returned to good order or closed, in which case it will stay on your credit report for a further six years. Credit assessment tends to focus on your most recent credit history and should take account of the age of any late payments, plus the fact that they occurred while you were taking positive steps to deal with your debts.

You can add an explanatory statement (a ‘notice of correction’) to your credit report and you could use this to explain why you got into difficulties in the first place. You could also use this to flag up a current DMP if your debts have already defaulted, or will default because you are only able to make very small repayments. There is guidance on how to word your notice on the Experian website.

The key issue is that, if you stick with your DMP, you’ll be back in control of your debts. And no matter how severe a credit scoring hangover you are left with, time is a great healer and your credit record will soon recover.

*www.creditexpert.co.uk – January 2012

Written by Gemma on May 14th, 2012

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How do I… budget?

Whether in debt or not, we should all learn to budget. For some of us budgeting will come naturally, but for others it can be more difficult. Therefore we have put together a guide to show you how to prepare a budget:

Do you have any budget tips? Share them with us by leaving a comment in the box below.

And remember if you are struggling to make ends meet and make you repayments to creditors then please call us on 0800 2945205 or fill in our online referral form and we will call you.

Written by Gemma on May 11th, 2012

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Disabled people and debt

Today’s blog has been written by Eugene Grant who works for disability charity Scope.

“We are struggling financially and finding it very hard to cope. I am at my wits end [trying] to find a way out of the debts.” This quote from a disabled mother of a disabled child will resonate with many people all over Britain right now. Recent estimates show that some 10 million people find it a constant struggle to manage their debts; last year, over one and a half million people sought help from debt advice services.

For many disabled people, their financial situation has been made worse by problems with their benefits or social care packages – the result of bad decisions made by Government or their local authority. Currently, around 39% of disabled people who challenge the outcome of a Work Capability Assessment – the test to determine eligibility for disability out-of-work benefits – have the original decision overturned in their favour. With cash-strapped councils tightening eligibility for social care packages, lots of disabled people are at risk of losing out on vital financial support.

Times are hard for everyone, but disabled people are in a particularly unstable position. They are much more likely to live in poverty, be unemployed and have lower wages than non-disabled people. These problems are made worse by the fact that many disabled people then have to spend more of their income covering the extra costs that arise from the barriers in our society – barriers like unsuitable housing or inaccessible transport.

Wrong decisions by benefits and social care assessors, lower incomes, extra costs – all these factors can add up. As a result, many disabled people struggle to cope with debt. About one in five of the people who approach Citizens Advice Bureau to get help with their debts are disabled. A survey conducted by Scope and the independent think tank Demos found that 38% of households with a disabled member reported they were in debt – not including their mortgage.

Debt is a vicious, cycle; it can feel like there’s no end in sight. Some disabled people who are unable to work cannot access low interest rates on credit cards. Often, banks won’t lend to people on benefits – even though this is often a consistent, stable source of income for disabled people who will face barriers throughout their lives. For many families who are living day-to-day, with little or no financial stability, sometimes all it takes is an unforeseen event – an emergency like a boiler breaking down in the middle of winter – to push them over the edge financially.

The most important thing to remember is this: if you are in debt and struggling to cope, you are not alone. Even more important is the fact that there is help out there; debt advice has been proven to have a positive effect on people’s financial situation.

If you’ve had a change to your social care plan and are now not getting enough money to pay for the help you need, charities like Scope have information to help; if you’re looking for advice with challenging a decision about your benefits, then there are plenty of places like Citizens Advice Bureau that can support you. If you’re struggling to cope with debt or cover extra disability costs, it is always worth seeking out help, early on, from a free debt advice service – like this one – and not suffering in silence.

Written by Gemma on May 9th, 2012

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