Should you merge your finances?

Divorce and debt

When considering the causes of debt, all the common culprits spring to mind don’t they? Loss of a job, increase in living costs due to the economy, bad spending habits that max out credit cards, debt consolidation loans, to name a few. To most of us it comes as a surprise that divorce is also one of the major causes of debt.

While finances often add to the marital stress, it very often also ruins people financially long after the marriage has dissolved.  Here’s what you need to know about divorce and debt.

Married in Community Of Property (COP)

If you’re married in community of property, this means that you and your spouse have a joint estate. Everything you have is owned by both of you, equally. The same holds true if you divorce – you share the assets.

This is the default contract under South African law because it was seen to protect women who stayed at home to raise children – she had equal claim to the family’s finances. However, as many women (and men) have discovered, you also share all liabilities, like debt.

Married outside Community Of Property (COP)

You need to enter into this contract before the marriage takes place. When are you married out of community of property? It means your estates are not considered jointly. They are separate according to the law.

Who pays what after divorce?

Let’s say a couple who owns a house together gets divorced. If the couple was married in ­community of property, the debt on the property is a joint debt. They will be jointly and severally liable. This means that each partner is not just liable for half the debt now that they are divorced, in fact, the bank can seek the full amount from either of them. The one spouse who is held liable by the bank would then have a claim of 50% of the debt against the other, but it would be his or her responsibility to collect that debt from their ex-spouse.

In some cases, the bank may agree to accept 50% from one person and release them from the ­liability. This works well in cases where a separation was not amicable and one person is able to pay 50% of the debt, while the other refuses to. This happens on an ad hoc basis, and it is at the bank’s discretion.

Getting divorced while under debt review

Your marriage contract will have a large impact on what is done with the debt review process once your divorce has been finalised. If you are married in community of property, you will be under a joint debt review. This is due to the fact that your estate is viewed together as one single joint estate according to the law. Both you and your husband are therefore responsible for the outstanding amount of debt, until your debt is finalised.

If you get divorced while you are under debt review and you have the debt review court order in place, then this will need to be rescinded and for new debt counselling applications to be started, as in order to follow on with the debt counselling process you will need to reapply, but will now need to be seen as two single applications. New budgets and new proposals will have to be drawn up.

 

If divorce has left you in debt contact a DebtCare debt counsellor as soon as possible.

 

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