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Will Insolvency Affect my Marriage or Divorce?

Will insolvency affect my marriage?

If you have financial problems which may border on insolvency, you may be concerned about how this will affect your spouse or spouse-to-be. This post considers how  the Individual Voluntary Arrangement (IVA) scheme may affect you and your partner, and addressees common concerns  and the concerns that married or co-habitant people may have about it.

Will my spouse become liable for my debts?

Individual Voluntary Arrangement’s are just that - individual. Your spouse will not become liable for your debts, and creditors will not be able to pursue your spouse or partner for settlement of your debts.If you and your spouse have joint debts, your creditors may only pursue your spouse for re-payment of the joint debts.

What if my spouse is also insolvent with his or her own debts?

The Insolvency Legislation does not allow couples to submit a joint proposal to creditors for an IVA. However, both spouses can submit an individual offer to creditors, if they are both insolvent. These seperate submissions are often described as being inter-locking - creditors must approve both sets of IVA proposals. If one spouses proposal is rejected, the other will be deemed to be rejected also.

How do IVA’s work for Spouses?

Interlocking IVA proposals take into account the financial dependency of partners. Usually, each partner will have their own creditors and may have one or more joint creditors as a couple.Partners may each own their own assets, such as a car, but they may jointly own other assets such as a house.

When submitting an IVA proposal, that partners will need to give a “statement of affairs”. The statements of affairs provided by each partner will differ to some extent as result of personal assets and liabilities.The Statement of Affairs will usually however, contain a joint Income & Expenditure statement. This will give details of how the joint living expenses of the partners are met  on a proportional basis depending on each partners income.

This means that is one partner earns twice that of the other partner, then the joint Income & Expenditure Statement will show one that the partner earning twice as much is partner paying two thirds of the household expenditure.

In this situation, when disposable income is calculated, the partner earning twice as much will be deemed to have twice as much disposable income.

Are our IVA proposals likely to be accepted?

Interlocking proposals for IVAs are very attractive to creditors. They result in administration costs being significantly lower than if each partner were to offer a proposal for a ‘stand alone’ IVA. It may also be more simple to deal with jointly owned assets, which can be dealt with in a mutual and consensual way, which may not be as easy if two stand alone IVA’s are submitted.

What if only one of us is insolvent?

Where one partner remains solvent and the other becomes insolvent the insolvent partner may make their IVA with the financial assistance of the solvent partner.This means that the solvent partner would have to have sufficient disposable income to be able to afford his or her personal and joint debts and could also voluntarily contribute any left over disposable income to the IVA of the insolvent partner.

This is often described as an assisted IVA. When an assisted IVA has been completed, the insolvent partner will be issued with a Certificate of Due Completion.It is important to note,  that the solvent partner will continue to be liable for any joint debts remaining unpaid.

Will an IVA Affect Divorce Proceedings?

If you have entered into an IVA as a homeowner, the affect of a divorce may depend on the equity you have in your home.

If you have little or no equity, then there may be no issue with a divorce settlement or separation agreement allowing one party to live in the home.

However,  if there is equity in the home, it is more likely to cause a problem. It may be difficult to  remortgage allowing you to release the equity.

If you decide to sell the home, then any equity will likely be paid into the joint IVA . This may cause problems between the parties to the divorce in agreeing the sale of the home.

Furthermore the costs of renting property as well as making IVA payments can be difficult to maintain.  After separation there will be two sets of rental payments and bills, which may mean that the initial proposed IVA payments are unaffordable..

However, the IVA can be separated, which will allow the payments to be recalculated and should make the IVA payments more affordable.

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