How will an IVA affect my partner?
Date posted: January 3, 2014 by Paddy Byrne
Being married or simply co-habiting implies that most ordinary aspects of life are shared by partners. Utilities such as water or electricity are consumed in varying amounts by co-habiting partners. In practice, partner A may consume much more water than partner B who in turn may consume much more electricity than partner A. Similarly, partner A might have a large expensive car necessary to travel to work while partner B might work in the home or use cheap public transport to travel a short distance to work. Thus for each item of expenditure, the partners might incur widely varying living expenses, regardless of the level of each partner’s income.
Looking at income however, it is relatively easy to calculate the relative percentages of the household income that each partner earns. The evidence of income is supported by pay-slips, P60’s, tax credits awards and so on.
The ownership of assets depends on many matters. Each asset such as a car or a house may be wholly or partly owned by either partner. Some assets may be owned on a 50/50 basis or on an entirely different basis. For example, if partner A owned a dwelling house outright and partner B moved in to cohabit, then it would be manifestly incorrect to assert that they each owned 50% of that property from day one.
Each partner is personally liable for his or her debts and both partners are liable for jointly incurred debts. So one partner may have a lot of debts and the other may have very few and there may be some or no joint debts. Accordingly, one partner may be insolvent and the other not.
If the insolvent partner decides to enter into an IVA, it will almost certainly have some effect on the solvent partner. For example, creditors will expect to see a statement of income and expenditure for the household showing how living expenses are addressed and paid for. One treatment of ordinary living expenses is for each partner to pay such expenses in the same ratio as their income. For example, if partner A earns two thirds of the total household income, then that partner is responsible for paying two thirds of the living expenses.
In regard to assets such as a house, creditors will expect to see who owns what and in what ratio. This is particularly important if there is equity in a jointly owned property. Creditors would expect the insolvent partner to address his or her share of the equity for their benefit. The insolvent partner might have to re-mortgage or sell the property and could not do so without the consent and agreement of the solvent partner.
A key consideration in all of these matters is whether the partners have agreed to pool their resources when they began to cohabit or indeed at some point thereafter. Even without a formal agreement, it may be implied from the evidence of their lifestyle and expenditure that they have so done. It may be that the solvent partner agrees to assist the insolvent partner who is in the IVA by contributing some or all their own surplus income to the IVA.
Finally, the insolvent partner’s IVA may impact on the other partner’s credit worthiness. The IVA will have addressed any joint debts, with creditors receiving a dividend from the IVA. However, the solvent partner has to maintain the full contractual repayments on the joint debt during the life of the IVA and any dividend paid from the IVA would shorten the length of the term of such a debt. During the life of the IVA the solvent partner may also have to deal with the reluctance of creditors to lend funds, knowing that the other partner is insolvent and in an IVA.
Nevertheless, many people have successfully completed their IVA without negatively affecting their solvent partner. A well constructed IVA will deal with all matters relating to income and expenditure, assets and liabilities and afford both partners an opportunity to fully and finally heal their financial woes.