Co-habiting partners, whether married or not, share most aspects of their lives. Although each partner often earns their own income independently of the other, many couples share the burden of paying for their normal living expenses on a mutual basis.
In theory, each partner might be expected to discharge expenses proportionately to their income. In practice however, there may be a great imbalance between the respective incomes of the partners. It would not be uncommon for one partner to earn say two thirds of the household income with the other partner earning one third. You would expect that the partners in this example would pay the living and household expenses on a similarly proportionate basis i.e. at a ratio of two to one.
However, let us suppose that the lower earning partner is much more extravagant than the other and incurs huge liabilities on overdraft, credit cards and unsecured loans to the extent of being insolvent. They enter into an IVA to address the debts. In such a scenario each partner is personally liable for their own debts and both partners are liable for jointly incurred debts.
How will the solvent partner be impacted?
When the insolvent partner enters into an IVA, creditors will expect to see a statement of income and expenditure for the household showing how living expenses are addressed and paid for. They will expect each partner to pay expenses in the same ratio as their income. 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, creditors may imply from the evidence of their lifestyle and expenditure that they have so done. In many cases the solvent partner may agree to assist the insolvent partner in their IVA by contributing some or all their own surplus income to the IVA.
It is hard to see therefore how the insolvent partner’s IVA would not impact on the solvent partner’s credit rating. The IVA proposal will have addressed any joint debts, with joint creditors receiving a dividend from the IVA. However, at the end of the term of the IVA, the solvent partner will be fully liable for the repayment of any unpaid balances remaining on joint debt. Indeed the solvent partner would be expected to maintain the full contractual repayments on joint debts, even 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. If you think you may be insolvent while your partner is not then you should consider consulting with an Insolvency Practitioner, otherwise known as an IP, as a first step. A reputable IP will look at all of your financial circumstances and will determine very quickly if you are insolvent or not. You should incur no costs in obtaining this advice. If you are in fact insolvent, your IP will go on to advise you on all of the options open to you and you can choose the best option for yourself.