It is a sobering statistic, but it has been forecast that nearly half of all marriages in the UK will end in divorce. Apart from the domestic trauma this implies, with issues of custody etc, it will also have a severe impact on incomes and consequently personal debts.
Divorce and couple separation are known to be central factors in the growth of personal debt. According to a recent report, no less than 28 per cent of bankruptcies arise from divorce or the break-up of established relationships.
And of course there is the irony that financial pressures and debt are among the central factors causing separations.
Best scenario
The best scenario if a relationship break up is inevitable is for a couple to sort out the final settlements and division of resources among themselves. If the couple do not have any children then this can be accomplished fairly easily, at least in theory.
However if children are involved, and the parties are incapable of coming to a voluntary arrangement, then the law gets involved.
And with the law comes cost.
The first serious debt a divorce can bring is the cost of the proceedings themselves. It has been calculated that the average cost of a divorce in the UK is about £14,000. The precise figure of course depends on the level of complexity involved. However few are likely to go through the procedure without incurring severe expense and debt.
This is often overlooked because most of the focus on relationship breakup and divorce is concentrated on the settlement, not the costs of the actual process itself. These costs start mounting as soon as you engage a solicitor.
Of course a relationship break up is a very emotional situation and partners are often not concentrating on finance at such a time. It is quite common for partners to borrow to fund the divorce in order to get matters over with as fast as possible.
Reducing costs
One way of reducing divorce costs which received a lot of attention some 10 years ago was the introduction into the UK of pre-nuptial agreements. These were legal, witnessed agreements between the different partners prior to the marriage which purported to agree the nature of any settlement after a break up.
Unfortunately, these have not proved as useful as was hoped. For one thing a couple’s financial position can change radically over time making the agreement effectively obsolete. And, of course, any agreement can still be challenged in the courts.
This often happens when there is a high degree of anger and enmity.
Family obligations
Often the member of the relationship who is awarded care of the children will either not be working or will have to seriously consider their options if they are in work. This will directly impact on what their needs and long term goals are for the future, and may result in considerable divorce debt.
The person without the children is, more often than not, going to be liable for some form of maintenance for them and perhaps for their spouse. This will again impact on their future, both financially and emotionally, in terms of new partners.
Separation agreements
One of the more painless ways in which divorce proceedings can be carried out, without undue financial risk, is by means of Separation Agreements or Deeds of Separation.
These can apply to both married and unmarried couples, and are less formal than a divorce action as they do not involve courts. This usually means they are also cheaper than other forms of agreement.
Separation Agreements may be entered into by couples who do not feel that they are ready for the formality and finality of divorce or as a step towards sorting out things such as property and finances before beginning formal divorce proceedings.
Separation Agreements are a more formal way of acknowledging that you and your spouse no longer live together and also set out any agreements you have made.
They may cover things such as mortgages, car payments etc.
Again children are the key. If there are no children then the situation is considerably simpler.
Be candid
If court proceedings are inevitable and you have to brief a solicitor, make sure you are as candid as possible about the nature of your assets and any serious debts. This is not the time to try and hide significant information. If you do, and it is pointed out by your partner’s solicitor, then you can hardly expect a favourable settlement.
But in some ways a favourable settlement should not be expected anyway. Although high-profile cases give the impression that some people do very well out of divorce settlements, that are in fact rarely the case.
Statistics clearly show that for at least the first few years anyway, both parties are likely to be worse off financially and debt wise than if they stayed together. Even straightforward maintenance payments very often do not make up for the receipt of a salary, and getting them enforced can be an expensive nightmare.
Finally, if you are contemplating a break up make absolutely sure creditors know that you are no longer responsible for debts incurred by the other party. Also, of course, tell them that your circumstances have changed and you will need time to rebuild your financial future.
It is very easy to forget in all the trauma and confusion surrounding these situations for debt arrangements to be overlooked. This is understandable, but not very wise, the obligation is still there and someone has to meet it - however they may be feeling at the time.