Personal Finance: Till debt do us part

DIVORCE MAY mean saying goodbye to your spouse, but it doesn't automatically mean bidding farewell to their debts, as one woman has found to her cost.

Pat is 49 and lives in Kent. She is disabled as the result of a car accident and can only work part-time. After 10 years of marriage, she and her husband divorced in 1988. Their house was transferred to her name in place of maintenance. But when she came to sell the house a year later, she had to repay all the debts secured on it.

"As well as the mortgage, there were two joint business loans for my ex-husband's firm, secured against it from when we were married," explains Pat. "Before I was able to move, the bank insisted I repaid the lot." The total, including an overdraft on a joint current account, was pounds 49,000 - pounds 22,000 of it due to business loans.

Pat says she had no idea the bank would expect her to repay all the business loans. "My ex-husband was still running his haulage business and I thought the bank would chase him for the loans," she says.

If she had known that the outstanding pounds 22,000 would come entirely from her own pocket, she wouldn't have taken on a major financial commitment, in the form of a lease on a shop, just a month before she sold the house. "I'd done all my calculations before I signed the lease, but I expected to be pounds 22,000 better off than I was," she comments.

Lloyds (now Lloyds TSB), which lent Pat and her ex-husband the money, says that it is perfectly within its rights to get either party to repay a joint loan in full, and that Pat should have been aware of this when she agreed to the loan. The bank says it tried to contact Pat's ex-husband several times by letter, but when he did not respond it had no alternative but to pursue Pat for the money.

Pat feels very bitter. "I was quite happy to pay off half my ex-husband's debts, but not the whole lot," she says. "He didn't pay a penny. I had to take out a personal loan to repay the business debts."

Simon Piggott, of divorce lawyers Levison Meltzer Piggott, says that Pat's solicitor should have warned her that the bank may claw back the entire loan from her. "One of the solicitor's jobs is to explain exactly what will happen to any joint debts and to make sure there will be no nasty surprises," he says.

"It's not uncommon for business loans to be secured on the matrimonial home, so the solicitor must be clear about what will happen come the divorce."

He says that in situations like this, banks are only concerned about their security, although in some cases they may allow the loan to be secured against another property. "Often the way the bank will treat this type of loan will depend largely on its relationship with the person in business. If it doesn't have a very good relationship and communication has broken down, it may be reluctant to renegotiate the terms of the loan."

Pat is in the process of taking action against her solicitor, and has filed a complaint with the profession's complaints body, the Office for Supervision of Solicitors. But the OSS is labouring under a backlog of some 17,000 complaints and Pat has heard very little since she complained more than a year ago.

Sally Quinn, who set up a campaigning group called Fair Shares, says that Pat's situation is not uncommon, and believes the banks should take a more flexible approach to marriage break-up. But it's a flexible approach that's often lacking these days, according to Stuart Cliffe of the National Association of Bank Customers.

"It seems to be a prime example of a bank looking out for its own interests. We'd like to see provision in the Banking Code to protect the divorcing partners' interests as well," he says.

If you've got joint debts:

Both of you are solely and jointly responsible: if one of you can't or won't pay, the other is obliged to.

Don't accept the marital home in lieu of maintenance unless you are sure that there are no debts secured on it, or you are prepared to pay them.

If you've guaranteed any loans, take advice about what your liabilities may be.

If you have a joint current account, get it frozen.

If you're about to divorce, make a list of your joint liabilities as well as assets.

Useful contacts: Office for the Supervision of Solicitors, 01926 820082; National Association of Bank Customers, PO Box 15, Caldicot, Newport, NP26 5YD