In today’s society, divorces are not uncommon and the decision for effective divorce can be made quickly. In 2016, for example, Belgium had 23,583 divorces according to General Direct Statistics Belgium. But that does not mean that it is easy when two partners suddenly go their own way. The emotions can run high and you will also have to deal with a lot of financial and legal challenges. But what about a divorce if you still have a joint loan?
A divorce is not just arranged. In addition to the administrative and legal settlements, you must also arrange your financial affairs with your former partner. These matters not only have to do with your joint home, car or custody of the children, but also concern joint loans that have not yet been paid off. Consider, for example, the current renovation loan on the family home.
What to do in the event of a divorce and outstanding, joint loans?
The question is clear: what to do with a divorce and a joint loan? Well: according to the bank, whoever has signed the loan contract is also bound by it. So if you have taken out a loan together, the bank can come and claim the money from both people. Even when one partner signed the loan and the other acted as guarantor for the other, both are responsible for the repayment. This is independent of your marriage system. Taking out a loan together is therefore not without risk.
As married or cohabiting couples, you may even be required to repay a loan that was taken out by your partner and for which you were not a guarantor. In that case, the specifications regarding this arrangement depend on your marital system.
Who has to pay back?
What happens with outstanding debts depends largely on your marital status and marriage contract. There are four options:
- You are legally or factually living together
When you and your partner live together legally or factually, you must each respect your own contracts. In this case, each party is responsible for the debts that he or she alone entered into. However, if your legally cohabiting partner can prove that the loan was for family needs or for raising the children, then you are also responsible for the debts.
- Married under the legal system
The legal system is automatically effective when you marry, unless your partner and you chose to redistribute the assets. The legal system divides the assets of the partners into three: the assets of one spouse, the assets of the other spouse and the joint assets. In the event of a divorce, only the common property will be distributed. All debts incurred during the marriage are deemed to have been incurred in the interest of the familyand therefore fall into the marriage community. Borrowing together therefore has an impact on the repayment of debts. The bank can use both the joint and the own funds of the spouses. In addition, it is required that both partners sign the loan in the legal system.
- Married under the system of separation of property
If you are married under the system of separation of property, there are two separate assets. Spouses retain ownership of their own property, income and responsibility for their own debts. The debts incurred by one of the marriage partners before or during the marriage therefore remain personal, whatever the cause of those debts may have been. The only situation where both partners are responsible for the debts is when both partners have signed a joint loan.
- Married under the general community of property scheme
What to do in the event of divorce if you are married under general community of property? This form entails more risk. No party only pays for his / her personal debts, since all debts are deemed to be common. Creditors can use both the joint and equity capital of the spouses to pay off their debts.
You can always use our comparison tool to find out which loan suits you best.
What about the mortgage loan?
In addition to personal loans for a new car, for example, it may well be that you have taken out a mortgage loan. In that case there are three options:
- You sell the house on which you took out a mortgage. The bank will be repaid with the money from the sale. If this is sufficient, you have repaid your debt. If not, you must repay the remaining amount together with your ex-partner. The bank can go to both of you for claiming the remaining credit.
- Your partner buys you out. In this case, your partner will not only take over the house but also the associated debts. These agreements only apply between you and your partner. The bank is not obliged to take this into account unless you inform the bank and obtain their approval. The bank must in fact check whether the other partner is able to pay off the debts alone and, if necessary, obtain additional guarantees.
- You keep the property. In this case, you and your partner will remain joint owners for a certain period of time under agreed conditions.
Can I take out a new loan without a partner after my divorce?
If the divorce is not yet final, a new debt still falls in the community under the legal system or the community of property, leaving both spouses responsible.
Once the divorce is over, you can use a loan to, for example, buy a new car after losing the family car or for a new household item. Of course it is also possible to use a loan to cover the costs of the divorce. For example, partner or child support.
However, only borrow money if you really need it and can handle the repayments. See if you can continue to repay the loan after the divorce proceedings and the distribution of money, property and debts.