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Question:

Debt review & divorce

28 September 2023

Marital problems often come with financial struggle, and sometimes it can lead to a breakdown of the relationship and even divorce. That may not be the case for everyone but it is for some.

Nevertheless, no matter what the reason for divorce is - there are a lot of things that will be affected, and for some that includes the process of debt review.

It’s of extreme importance for both people in a marriage to understand the impact of divorce on their financial situations, particularly if they are debt stressed or under debt counselling.

Once your divorce settlement has been finalised, what happens to your debt counselling process can vary according to your personal situation - particularly, whether or not you are married in community of property.

Your marriage contract will affect 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.

Married in community of property (COP): Joint debt review

If you are married in community of property, you will be under a joint debt review.

This is because your estate is viewed together as one single joint estate according to the law.

Both you and your partner are therefore responsible for the outstanding amount of debt until your debt is finalised.

Married out of community of property (With an antenuptial contract)

Should you have an antenuptial contract in place, you will apply for debt counselling as an individual. As such, you will be the sole person responsible for servicing the debt.

Getting divorced whilst under debt review

If you get divorced while you are under debt review and you already have the debt review court order in place, then this will need to be rescinded. You will then need to re-apply for debt counselling. With the re-application, you will need to be seen as two single applicants.

Here are some other important things to note for divorce and debt review:

  • Under normal circumstances, the debt review process takes up to 60 months. This time period could be affected if you go through a divorce during the process.
  • If you are married COP and have joint debt, you will both be liable for the full amount during and after the divorce. In other words, you won’t each be liable for half - a creditor can come to either of the individuals for the full amount. If this happens, the one who paid the debt can claim 50% from the other person, but it is their own responsibility to make that collection.

The debt review re-application process

Each person will apply to debt counselling individually, using the same process as they did before.

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A new budget and new proposals will have to be drawn up. A debt counsellor will do this by sending a change of circumstances form to all of your credit providers, explaining that you are going through a divorce and that the joint application will now be converted into two single applications, with the relevant debt put onto each person's debt review profile.

What are the effects of this re-application process

This can take time and will cost you more money due to legal fees, as well as potential debt counselling fees if changes in budgets and proposals are required.

Think of it like this - the debt review process will essentially be restarting. This means it can take up to 60 months, on top of the months you have already completed while married. In addition, there may be extra costs added like the application fees and legal debt if you used expensive divorce lawyers.

Can you continue to pay off your debt as a couple even if you are divorcing?

This may not be the best idea, because circumstance may make it difficult for both parties to work together to pay the debt.

However, it is not impossible. As mentioned before, the banks or credit providers can collect the full amount of debt from only one of the “partners”. You could come up with a personal agreement on how the debt will be paid.

That being said, it is not possible for you to jointly apply to debt counselling if you are not married in COP.

Divorce, Home Loans & Debt Review

Home loans are different to other debt because you can finish the debt review process while still having outstanding debt on your home loan.

To complete your debt review for a home loan, you simply have to be up to date and paid up and your account needs to be in good standing.

Joint bonds:

Home loans complicate the process, as if it is a joint bond, both you and your partner would have signed a surety and the bank that has given you the home loan will not care whether or not you are divorced.

You will both still be liable for meeting the debt repayments and either need to adhere to those repayments or make an alternative arrangement.

Are you getting divorced? Do you have a lot of debt? Speak to a debt counsellor immediately

If you are under debt counselling with DebtBusters, it is vital that you notify them about your divorce as soon as possible.

Should you need assistance with your debt, contact us!

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