Dirty tricks in a divorce can cause some nasty surprises
Failed relationships often bring out the worst in people over finances, reports Neasa MacErlean
Saturday 04 February 2012
Couples who are splitting up are increasingly likely to discover nasty surprises about their joint finances. The Financial Ombudsman Service and leading lawyers Pannone are among those noticing an uptick.
Practices coming to light include cleaning out a joint savings account, spending money that was meant to pay off the mortgage, running up debts on a credit card held in the other partner's name or simply taking out more debt without telling the other one.
As the divorce and separation cycle reaches its January and February peak, these practices are probably being discovered in greater numbers now.
An Ombudsman spokesman says: "We've started to see an increase in the number of inquiries and complaints where a marital – or other relationship – breakdown has been a factor."
About 5 per cent of the mortgage-related complaints before the Ombudsman involve "problems where one partner has taken out additional borrowing against the mortgage without the other party being aware".
That would translate into 350 cases a year, probably reflecting a far bigger number in the overall population.
Andrew Newbury, head of Pannone's family, personal and financial team, says: "Nasty surprises have always been a problem. There's always been a certain type of family where they've lived in debt. Sometimes that debt has been built up without the knowledge of the other partner. There's been an increase in that. It can be with very high earners, people earning six-figure salaries."
Many couples are unaware of the legal reality of the situation which, in cases of joint mortgage and loan accounts, usually entails "joint and several liability". This means that each partner is liable for the full debt if the other cannot or will not pay.
Caroline Hamilton, debt counsellor with debt counsellor debt the Consumer Credit Counselling Service (CCCS), says: "If one party is more able to pay, the bank will certainly chase that party." So, if the total monthly mortgage payment is £400, the bank may well require one partner to pay that in full if the other is not earning and has no funds. However, banks have to consider compromises in hardship cases.
Many people will be involved with partners whose attitudes to money they do not share. The average rating given by credit scorer Experian is "fair" (or, more precisely, 754 out of a maximum score of 999). Since a "good" mark is only achieved with a mark of 881 or more, most people are rather lacking in the way they manage their money.
When two people apply for a loan or account together, their credit ratings get linked by credit ratings agencies. "If your partner is really bad with money, it could knock your credit score down," says Experian spokesman James Jones. "The implication of the link is that if the person gets into financial difficulties, you are going to bail them out."
Many couples pay their mortgages from a joint account which they both pay into. But sometimes one partner takes on the responsibility, often receiving a monthly payment for this purpose from the other.
With a joint account it is easy for both partners to check that all is in order and that the mortgage payments are going out properly. But it can take a long time for one partner to discover that the other partner has not been paying the mortgage if there is no joint account.
If there are problems, then the innocent party will find their credit rating damaged quickly. "That will pretty much prevent you from borrowing in this market," says David Hollingworth of London & Country Mortgages.
If problems of this kind come to light, then people can contact the credit raters and ask them to break the link with their ex-partners. Experian saw a 15 per cent increase in these so-called "disassociation" requests in 2011.
If someone is worried that a partner might empty a joint current or savings account they can ask their bank to freeze it so no money can be taken out until the issue is resolved.
If there are other joint assets, then any withdrawals from shared accounts can be settled up later, says Glasgow-based family lawyer Alan Susskind of Harper Macleod.
"If someone takes £5,000 from the joint account they are going to receive £5,000 less later on," he says. "If there are no other assets, the remedy may be court action."
People who are worried about their relationships could take Mr Newbury's straightforward advice. "Ask the bank to reduce the overdraft limit," he says. "Encourage them [the partner] to get their own credit card."
Many people might be surprised at the way liability on credit cards work. Amongst the 12 million Barclaycard holders in the UK, for instance, nearly 2.5 million have allowed a second person to be registered on their card. Even if all the debts are run up by the second user, the main card-holder is solely liable.
"There is no such thing as a joint credit card," said James Jones of Experian.
If separation is bad enough at the best of times, it can be far worse if there are unpleasant revelations of this kind. CCCS sometimes has to give clients a second appointment in a couple of days so they can process some of their anger before trying to concentrate on the facts again.
Ms Hamilton has frequently seen cases involving "£24,000 of nasty surprises" and upwards.
The couple of months just after Christmas have come to be seen as the busiest time for break-ups. But Mr Susskind says that this trend is weakening as fewer people can afford to split up.
A "far higher proportion" of parting couples continue to live under the same roof and only physically split when they sell their homes. In the current market, that can take years.
Divorce and separation are not the only spurs for nasty surprises. Ms Hamilton says that such unexpected debts often come to the fore when relationships are intact but when one partner goes into a nursing home or dies.
Debt is growing amongst the older age groups, and she has seen cases where widows and widowers have had to accept a charge on their home to pay off the debts run up secretly by their deceased spouse.
Another version of the nasty surprise scenario comes with the purchase of pension annuities. People who are married are sometimes encouraged to take out a "joint life annuity" with the proceeds of any money-purchase pension plan that they might own. This way their spouse continues to receive an income after the annuity-holder dies.
But Stuart Bayliss of the Annuity Exchange says: "There is a group of people who've said they are not interested in providing for their partners."
These people would then buy a "single-life annuity" which stops paying out when they die.
Data from Aviva suggests that not even one in three people (29 per cent) buy a joint-life plan. Many of them may simply be unaware of joint policies. But, whatever the reason, their surviving partner could suddenly find themselves on a significantly reduced income.
Case study: 'I felt bad that I was taking advantage of my position'
"My ex was as mean as a skunk," says Rose (not her real name).
She paid all the bills and all the mortgage on the house they shared through the seven years they lived together. "I thought that he was poor at the start, but then I discovered that he was mean."
They agreed to split, and he was going to move out. They were selling a second property, a buy-to-let cottage. As far as the outside world was concerned they owned it jointly but, in reality, Rose had put up 70 per cent of the money.
Rose was doing the conveyancing on the house and she nominated her account, rather than a joint one, as the place where the proceeds from the sale would be received.
"I felt that if he saw the whole sum in our joint account, he would be very tempted to try to get half rather than just his 30 per cent."
She was worried that he might freeze their joint account and try to force her to accept a 50/50 split.
On the same day that the funds came in to her account she transferred a 30 per cent portion to him. He accepted that and never raised questions about why she had not used the joint account.
"I felt a bit bad that I was taking advantage of my position as the conveyancer to get the cash into my account," she says. "But I didn't break the law and I am, justifiably, about £15,000 richer as a result."
Divorce website (in Scotland): www.therightkindofdivorce.com
Experian: Credit guides: www.experian.co.uk/consumer/resources.htm
lExperian: Living together guide: www.experian.co.uk/downloads/consumer/creditCrossroads/livingTogether.pdf
Financial Ombudsman Service: www.financial-ombudsman.org.uk or 0800 023 4567
Resolution (advice on separation section, for England and Wales): www.resolution.org.uk/advice_centre
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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