How will an IVA affect my Marriage?
Whether you are already married or just contemplating getting married, if you have financial problems bordering on insolvency, it makes sense to consider the effects of the various solutions on your current or future spouse. Here we will look briefly at the Individual Voluntary Arrangement (IVA) solution and the concerns that married (or co-habiting) people sometimes have about it.
An IVA is what it says on the tin – an Individual Voluntary Arrangement. That being the case, your spouse would not be liable for your debts. Creditors could not pursue your spouse to address your debts. Nor could they seek to satisfy these debts by going after your spouse’s property. Even if you and your spouse have some joint debts, creditors can only pursue your spouse for re-payment of the joint debts. What if your spouse is also insolvent with his or her own debts?
Interlocking IVA
Under the Insolvency Legislation a couple cannot offer a joint proposal to creditors for an IVA. However, each partner may individually offer to their creditors a proposal for an IVA, provided they are both insolvent. In other words two proposals are offered to creditors one from each partner and these two proposals are often described as being interlocking, insofar that creditors must approve both sets of proposals.
In interlocking IVA proposals, if creditors approve one proposal and reject the other, then both sets of proposals are deemed to have been rejected. Such proposals recognize the mutual financial dependency of the partners. Typically, each partner will have his or her own personal creditors and the couple may have one or more joint creditors. Each partner may have their own assets such as a car and they may jointly own assets such as a house.
The statements of affairs of the partners provided in each of their IVA proposals will therefore differ to some extent in relation to liabilities and assets. Usually however, the Statement of Affairs contains a joint Income & Expenditure statement in which the joint living expenses of the couple are met on a basis proportionate to each partner’s individual income. For example, if one partner’s net income (after tax & NI deductions) is twice that of the other partner, then the joint Income & Expenditure Statement will show one partner paying two thirds of the household expenditure and the other partner paying the other third. The calculation of each partner’s disposable income (DI) will result in the higher earning partner’s DI being twice that of the lower earning partner.
From the point of view of creditors such interlocking proposals for IVAs are often attractive, since administration costs will usually be significantly lower than they would be if each partner were to offer a proposal for a ‘stand alone’ IVA. There are also benefits of simplicity where jointly owned assets (such as the equity in a house) can be dealt with in a mutual and consensual way, which might not be the case in two ‘stand alone’ IVAs.
In a scenario where one partner is solvent and the other is insolvent an approach frequently taken is for the insolvent partner to offer a proposal for an IVA with the financial assistance of the solvent partner. In such cases the solvent partner would have to retain sufficient DI to service his or her personal and joint debts on a normal ongoing commercial basis, but could voluntarily contribute any remaining DI to the IVA of the insolvent partner. Such an IVA is frequently described as an assisted IVA. When such an assisted IVA is complete and the insolvent partner is issued with a Certificate of Due Completion, it is important to remember that the solvent partner continues to be liable for any balances of joint debts remaining unpaid.