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Marital Debt

The concept that Love Conquers All has been the theme of poetry, songs, plays, motion pictures and even superb works of art such as Caravaggio’s Amor Vincit Omnia. From the scriptures we’re not surprised to come across a lot of references to the power of love. St Paul wrote: ‘Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellow man has fulfilled the law’.

So, just how can two people, regardless of whether married or co-habiting, handle serious personal debt, and “Is love the solution”? Can it triumph over everything? There’s a great deal of evidence that debt is a major problem for married or cohabiting couples and a fundamental root cause of separation and divorce.

Married Couple in Debt

The latest instance of a well-known couple who have sadly made the decision to go their different ways is that of D.J. Carey the celebrated Irish hurler and entrepreneur and his partner and fiancé, Englishwoman Sarah Newman who became a dot com millionaire and was Ireland’s first female dragon on the Irish version of the popular TV show Dragons Den. The couple decided to call off their impending marriage and to go their different ways and in the general public understanding of their situation their personal and business debts played a big part in their troubles. Coming hard on the heels of that unfortunate turn of events, D.J.’s health has suffered culminating in his recent collapse and hospitalization. All Irish sports fans wish him well in his recuperation.

The question on the lips of many everyday people is just what this famous and talented couple could have undertaken together to deal with their debt troubles and whether there are financial solutions which could have restored their enterprises and assisted them in focussing on their personal relationship. Did it all have to end in tears? Is Irish insolvency legislation aiding at all? The Irish Government is fully committed to publishing the final version of a new Personal Insolvency Bill prior to the end of April 2012. It is a time frame imposed by the troika of the IMF, the EU and the ECB as a condition of the bailout deal of 2010. The deadline had been March 2012 but a further month’s grace was granted to enable the government to fine tune the bill. It has just been leaked that because of slippage, the Irish Government is not going to issue the final bill now until at least June 2012. The explanation provided this time is that it is better to get it right than to get it quickly! There is a lot of skepticism that they will get it even remotely right and there is widespread anxiety that creditors will have way too big a say in the several alternatives being mooted for Ireland.

In the UK however, there is a mature body of legislation dealing with personal insolvency and many Irish people, including couples, are emigrating briefly to the UK, so they can avail of what is to choose from. In EU law, they can cope with their debt problems in another EU member state, such as the UK, so long as they can show that it is in that state that their Centre of Main Interest or COMI lies. Living and working in such a foreign jurisdiction for a relatively short period of time, e.g. six months, seems to be satisfactory to create a COMI there, no matter where debts were incurred.

Among the financial options for insolvent people found in the UK but not in Ireland as yet is an Individual Voluntary Arrangement (IVA), whereby they can address their debt difficulties. Even though, under the UK Insolvency laws, a couple are not able to offer a joint proposal to creditors for an IVA, each insolvent partner can on their own offer proposals for an IVA. Put another way two proposals are presented to creditors one from each partner and these two proposals are generally called interlocking, insofar as that creditors will have to agree to both sets of proposals. In interlocking IVA proposals, if lenders approve one proposal and decline the other, then both sets of proposals are considered to have been rejected.

Such proposals acknowledge the shared financial dependency of the partners. Ordinarily, each partner will have his or her own personal creditors and the couple could have a number of mutual creditors. Each partner may have their own assets such as a vehicle 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 a degree in relation to liabilities and assets. Normally 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 instance, if one partner’s net income, after tax & NI deductions, is two times that of the other partner, then the mutual Income & Expenditure Statement shows 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 or DI will result in the higher earning partner’s DI being double that of the lower earning partner.

From the viewpoint of lenders such interlocking proposals for IVAs are often attractive, since administration expenses will usually be significantly lower than they would be if each partner were to offer a proposal for a ‘stand alone’ IVA. Additionally, there are advantages of simplicity where jointly owned assets, such as the equity in a residence, can be managed in a shared and consensual way, which might not be the situation in two ‘stand alone’ IVAs.

In a situation 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 aid of the solvent partner. In such cases the solvent partner will have to hold on to adequate DI to service his or her personal and joint debts on a normal ongoing commercial basis, but would be able to donate any remaining DI to the IVA of the insolvent partner. Such an IVA is usually described as an assisted IVA. As soon as this type of assisted IVA is finished and the insolvent partner is issued with a Certificate of Due Completion, the solvent partner will continue to be responsible for repaying any balances of joint debts remaining unpaid at that stage.

Although love may not overcome all in monetary issues, it definitely may help to ensure that interlocking IVA proposals have a considerably better chance of being approved by lenders and being completed successfully in supervision.

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