For the richest or the poorest – a debt pandemic? PART 2
As explained in our previous overview, more families than ever are now relying on financing arrangements, credit cards or loans. This can have a big impact and deserves careful consideration if a couple are also going through a divorce.
What about mortgages, especially if there has been a mortgage holiday?
An outstanding balance of a mortgage secured against a house owed to the lender is a marital debt. Special considerations should be taken when a home is held for a period of time after separation before it is transferred or sold. The figure of the outstanding mortgage balance should be obtained and taken into account when making decisions about transfer or sale.
Due to the pandemic, many couples have relied on mortgage vacations. A mortgage holiday can impact the total outstanding loan balance, which means having to pay interest on a larger amount of the outstanding loan.
What about BBLS and CBILS?
The Bounce Back Loan Scheme (BBLS) and the Covid Business Interruption Loan (CBILS) are terms that did not exist around the same time last year. It is common, however, for those with businesses to have secured funding during the pandemic. This will normally have to be taken into account if one of the parties to the divorce has a business, if the business has a balance that it needs to repay.
What about tax obligations?
Tax obligations are not fully linked to the pandemic, but those with income may have found that with the disruption of income streams, they struggled to meet their obligations, resulting in taxes.
The tax obligations owed to HMRC on the date of separation are a matrimonial debt.
Tax may also be due as a result of the realization of an asset during a divorce to affect a settlement. For example, capital gains tax is often due on a disposal.
A “contingent liability” or a “fictitious debt” is not part of the balance sheet of marital property subject to division between a couple. This is not to say that they cannot be considered as part of a discussion or agreement on finances. However, the legal precedent is that they are ignored in a strict application of legal principles.