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Couples Dealing With Debts

13th May 2013

By Andrew Graveson

When confronting debt problems many couples assume that they must both approach their debts using the same debt solution. If a husband intends to sign a Scottish trust deed should his wife choose the same route? If a girlfriend intends to enter sequestration is there any reason why her boyfriend shouldn’t consider the debt arrangement scheme? If your partner has less serious debt problems than you do they have to act on their debts at all?

The finances of a couple might be closely related, but this certainly does not mean that they should automatically seek to resolve a debt problem in an identical way. In many cases it will be in each of their best interests, and therefore in the overall best interests of their household, if they tackle problem debts using different mechanisms.

Why would this be the case? Surely it would be easier for a husband and wife to both sign trust deeds rather than take different directions? Wouldn’t it create a lot of extra work if one partner had a protected trust deed and the other became bankrupt?

The starting point for providing debt advice is to work through a “fact-finding” exercise. A debt adviser will record the details of each of your incomes, each of your assets and each of your debts (understanding that some debts and assets might be of a “joint” nature).  They will also record details of your individual and joint household expenditure. A picture is created of the overall household financial position, but also of the financial position of each member of the couple.

This exercise can uncover some surprising insights that influence the advice regarding debt solutions that is provided. An example might help to illustrate this:

  • A husband is working full-time. His wife is currently not working as she is looking after their young family. Each has £15,000 of unsecured debts. Their home has no equity in it and they use his company car for transport. 

  • In this scenario it’s possible that the husband will be deemed to have some “disposable income” after the family expenses are deducted from his earned income. Let’s say this amount is £250 per month. He may be able to use this disposable income to fund a trust deed that runs for three years. He might also be able to use it for a payment agreement in bankruptcy (also three years) or to fund a debt arrangement scheme for himself (which could last for five years).

  • The wife isn’t likely to be deemed to have any “disposable income” as she is, at the current time, financial dependent upon the income of her husband. This means she is unlikely to be able to enter a protected trust deed. She might consider sequestration (bankruptcy) instead and is very unlikely to be asked to make a contribution towards the debts. She would be discharged from her debts after a year. She cannot enter her own debt arrangement scheme as no surplus funds exist to fund it.

  • The couple also have an option to enter a joint debt arrangement scheme. £250 per month would be paid towards their combined debts of £30,000. This could take ten years to complete.     

As a household they therefore have the following options:

  1. He signs a trust deed and she becomes bankrupt (sequestration). The household is debt-free after three years.

  2. Both become bankrupt. The household will be debt-free after one year but payments towards the debts (for him) will last for three years.

  3. He enters into a debt arrangement scheme and she becomes bankrupt. The household will be debt-free after five years.

  4. They jointly enter a debt arrangement scheme. The household will be debt-free after ten years.

  5. One partner selects a debt solution and the other partner doesn’t act at all. There is no immediate prospect that the household will become debt-free.   

What this example underlines are two principles that couples should bear in mind when they set out to deal with their debts. Firstly, it will not always be the case that each of you has access to the same options to deal with your debts. Secondly, even where you do have the same options, choosing the same route forwards will not necessarily produce the optimum outcome for your household.

Remember also that the firms featured on this website handle all of the major debts solutions in Scotland. Even if each of you chooses different options you can still proceed together in a straightforward and coordinated way (with a single firm and adviser to help you).

As always, seeking advice from a qualified debt adviser or a regulated insolvency practitioner firm is the best starting point. They’ll be able to set out each of your options for you and explain the pros and cons associated with the various choices that you might have. This will position you to take control of your financial future by making an informed assessment about what each of you should do next. 

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