Liability for Debts?

moneywasternomore!

My father has recently passed away. Sadly for all concerned, he left no will and had no life insurance. He does, however, have considerable business and personal debt. My concern now is for his spouse - my stepmother - and the degree to which she may be liable for any outstanding debt. They have a joint mortgage and I estimate there to be around £100k equity in the house. As far as I know, there are no other assets.

Briefly...as a sole trader (small village shop), I understand that any outstanding debt is recoverable from the estate? Due to a lengthy illness, the business has declined but is being kept afloat by the staff.

First question: what is the process for transferring ownership to his spouse, in order to keep the business going (and thereby maintaining its viability with a view to selling it)? Second question: To what extent is his widow liable for those debts; does this alter if the business is not transferred to her? Third question: He has accrued personal debt on various credit cards and bank overdrafts. As far as I can tell - and it's only been a few days - these seem to be in his name only. Do the debts die with him, or will his widow be liable and have to sell the house (and/or business) to meet these?

I'm sure that solicitors will need to be involved at some stage, but am loathe to pay out for advice - especially with a funeral to fund somehow- when I'm sure I can garner some excellent info here.

And I'd be grateful for the facts rather than any finger-pointing. I know he's not acted in the best way, but he was still my dad and this is all still a bit raw. Thanks in advance.

Keep_pedalling

How was the property owned, joint tenants or tenants in common?

Are the business loans secured against their home?

Edit - one further question if I may, is you step mother going to be able to keep up the mortgage payment on her own?

DandelionPatrol

Good questions, which I will tackle in a different order

moneywasternomore! wrote: »

Third question: He has accrued personal debt on various credit cards and bank overdrafts. As far as I can tell - and it's only been a few days - these seem to be in his name only. Do the debts die with him, or will his widow be liable and have to sell the house (and/or business) to meet these?

The debts in his name are his. So they are paid from his assets. If there are not enough assets, then debts are paid firstly to the secured creditors from the secured assets [see below] and then by percentage distribution. This is broad brush, because of the complexity, you may need advice.

moneywasternomore! wrote: »

Second question: To what extent is his widow liable for those debts; does this alter if the business is not transferred to her?

Widow is only liable for joint debt and for secured debt from the respective secured assets

moneywasternomore! wrote: »

First question: what is the process for transferring ownership to his spouse, in order to keep the business going (and thereby maintaining its viability with a view to selling it)?

Because of the debt situation, I suggest she does not take over the business immediately but you consider whether the estate keeps it running as a going concern and an asset of the estate. Obviously, the business as a whole is probably bust, but there might be a business which could be extracted with positive value if it is kept running.

I suggest a stock take is required right now as an immediate action, followed by an assessment of whether there is value to the estate in keeping the business running.

Someone will no doubt come along and say "don't touch it, this is intermeddling and you will have to deal with it all". True enough, but I think that there is very little option as obviously you will want to extract maximum value for Step Mother.

The questions from Keep pedalling, above, are very relevant. If the property is owned Joint Tenants, it passes to Step Mother immediately and is not taken into account as part of settling debt within Father's estate, whereas if it is Tenants in Common, Father's share has to be available for settling debts. However if loans are secured against the property, the value becomes available for settling the secured debt, regardless of transfer to Step Mother.

It is all a complex situation to wade through. I think the first question which needs answering is

Does Step Mother wish to continue the business?

If she does, then the next question is

Is is viable for her to continue the business?

If it is not viable for her to continue the business, or she does not want to, then the next question is

Is the business viable to continue, is it saleable, does it add value to the estate?

These 3 questions should be worked through fairly quickly to decisions and if the business is to continue, it needs to be disentangled from Father's affairs without delay. And if it is not to continue, stock needs to be cleared and the business shut equally quickly. But as you will be well aware, shutting it other than an odd day for the funeral etc, while a decision is made, will kill the business because people will quickly establish other shopping habits.

Yorkshireman99

moneywasternomore! wrote: »

My father has recently passed away. Sadly for all concerned, he left no will and had no life insurance. He does, however, have considerable business and personal debt. My concern now is for his spouse - my stepmother - and the degree to which she may be liable for any outstanding debt. They have a joint mortgage and I estimate there to be around £100k equity in the house. As far as I know, there are no other assets.

Briefly...as a sole trader (small village shop), I understand that any outstanding debt is recoverable from the estate? Due to a lengthy illness, the business has declined but is being kept afloat by the staff.

First question: what is the process for transferring ownership to his spouse, in order to keep the business going (and thereby maintaining its viability with a view to selling it)? Second question: To what extent is his widow liable for those debts; does this alter if the business is not transferred to her? Third question: He has accrued personal debt on various credit cards and bank overdrafts. As far as I can tell - and it's only been a few days - these seem to be in his name only. Do the debts die with him, or will his widow be liable and have to sell the house (and/or business) to meet these?

I'm sure that solicitors will need to be involved at some stage, but am loathe to pay out for advice - especially with a funeral to fund somehow- when I'm sure I can garner some excellent info here.

And I'd be grateful for the facts rather than any finger-pointing. I know he's not acted in the best way, but he was still my dad and this is all still a bit raw. Thanks in advance.

The local authority or hospital where the death occurred are responsible for the funeral costs as the family has not funds. Don't make the mistake of arranging the funeral as you will then be liable for the costs. The step mother needs urgent, like tomorrow, professional advice.Without it there is a very real risk that those who try to deal with the situation will incur personal liabilities because this is known technically as intermeddling. The suggestion that there is little or no choice but to intermeddle is seriously wrong and frankly irresponsible. What has to be done is a matter of complying with the law and not getting into a bigger mess than already exists by not doing so. The debts will have to be set against any assets that the estate has. The widow will not be responsible for the deceased debts unless any are in joint names

antrobus

moneywasternomore! wrote: »

• Third question: He has accrued personal debt on various credit cards and bank overdrafts. As far as I can tell - and it's only been a few days - these seem to be in his name only. Do the debts die with him, or will his widow be liable and have to sell the house (and/or business) to meet these?

The point about the house would be that if father and stepmother owned it as tenants in common, then father's (presumed) 50% share would form part of the estate, and therefore might have to be realised in order to repay the debts.

If father and stepmother owned it as joint tenants, then the father's share would automatically pass to the stepmother, and would not form part of the estate. However, if the estate was insolvent, the creditors could use s421a of the Insolvency Act 1986 to force the stepmother to pay the value of the 50% share of the property back into the estate. Which would be the same difference.

Obviously, no one can say whether or not the creditors would do that. But they could.

antrobus

DandelionPatrol wrote: »

...Someone will no doubt come along and say "don't touch it, this is intermeddling and you will have to deal with it all". True enough, but I think that there is very little option as obviously you will want to extract maximum value for Step Mother...

Yes, somebody needs to deal with the estate. There is a clear order of priority as to whom may apply for a grant of administration. If the deceased's spouse does not wish to apply, the OP would be next in line.

http://www.legislation.gov.uk/uksi/1987/2024/article/22/made

No question of intermeddling if you are the administrator.

DandelionPatrol

Yorkshireman99 wrote: »

The local authority or hospital where the death occurred are responsible for the funeral costs as the family has not funds. Don't make the mistake of arranging the funeral as you will then be liable for the costs. The step mother needs urgent, like tomorrow, professional advice.Without it there is a very real risk that those who try to deal with the situation will incur personal liabilities because this is known technically as intermeddling. The suggestion that there is little or no choice but to intermeddle is seriously wrong and frankly irresponsible. What has to be done is a matter of complying with the law and not getting into a bigger mess than already exists by not doing so. The debts will have to be set against any assets that the estate has. The widow will not be responsible for the deceased debts unless any are in joint names

So what do they do? Shut up shop and destroy the business - and potentially value to the estate to avoid intermeddling? What if Step Mother wants to continue and maintain her livelihood? Her only alternative to intermeddling is to send the business down the pan.

The advice against intermeddling is usual in the context of an estate which can be seen to be in net debt with no on-going affairs and it is fair enough to let any of the creditors have a go if they are up for it.

But in this case, frankly it would be mad to walk away from the business and let it go to the wall to appease you, without keeping it going long enough to assess the value - or at least liquidate the stock.

(Text removed by MSE Forum Team)

moneywasternomore!

Thanks for all your replies. I'll try to address some of the other points later, but just want to clarify the position of the business.

It has been for sale for a number of months - possibly as long as a couple of years - with some interest in the early stages but little of late. It is still viable (I will get to see full figures on Tuesday, but it's still making a profit) but seemingly not attractive enough to entice a buyer. It is managed on a day-to-day basis by staff but they have been somewhat hamstrung of late by my dad wanting to keep control, yet being increasingly less able to focus on it as his health deteriorated. My stepmother also has a small business in her name - this plus her state pension would be enough to pay the mortgage which I believe is interest only and has 17 years remaining on its current term. To clarify, the shop debts are not business loans per se; more unpaid suppliers and council rates plus - most pressingly - a CCJ from, would you believe, his accountants!

If I've read this correctly, if they close the doors and simply cease trading, as long as the debts are in his name, the creditors cannot make my stepmother sell the house to meet those debts (assuming they are joint tenants - clarifying this tomorrow)? If they manage to sell the business, any profits from that sale will go to repaying the business debts; if there is any 'estate' left after this, my stepmother would not be liable for any of my dad's personal debts - credit cards etc?

Thanks again for your inputs

Yorkshireman99

moneywasternomore! wrote: »

Thanks for all your replies. I'll try to address some of the other points later, but just want to clarify the position of the business.

It has been for sale for a number of months - possibly as long as a couple of years - with some interest in the early stages but little of late. It is still viable (I will get to see full figures on Tuesday, but it's still making a profit) but seemingly not attractive enough to entice a buyer. It is managed on a day-to-day basis by staff but they have been somewhat hamstrung of late by my dad wanting to keep control, yet being increasingly less able to focus on it as his health deteriorated. My stepmother also has a small business in her name - this plus her state pension would be enough to pay the mortgage which I believe is interest only and has 17 years remaining on its current term. To clarify, the shop debts are not business loans per se; more unpaid suppliers and council rates plus - most pressingly - a CCJ from, would you believe, his accountants!

If I've read this correctly, if they close the doors and simply cease trading, as long as the debts are in his name, the creditors cannot make my stepmother sell the house to meet those debts (assuming they are joint tenants - clarifying this tomorrow)? If they manage to sell the business, any profits from that sale will go to repaying the business debts; if there is any 'estate' left after this, my stepmother would not be liable for any of my dad's personal debts - credit cards etc?

Thanks again for your inputs

The family really need some paid for professional advice rather than taking it from here. A few hundred pounds spent now should save a crisis turning into a complete disaster.

DandelionPatrol

moneywasternomore! wrote: »

Thanks for all your replies. I'll try to address some of the other points later, but just want to clarify the position of the business.

It has been for sale for a number of months - possibly as long as a couple of years - with some interest in the early stages but little of late. It is still viable (I will get to see full figures on Tuesday, but it's still making a profit) but seemingly not attractive enough to entice a buyer. It is managed on a day-to-day basis by staff but they have been somewhat hamstrung of late by my dad wanting to keep control, yet being increasingly less able to focus on it as his health deteriorated. My stepmother also has a small business in her name - this plus her state pension would be enough to pay the mortgage which I believe is interest only and has 17 years remaining on its current term.

Don't forget that an exit plan is required from the mortgage, on interest only, the capital will be required at the end of the term.

moneywasternomore! wrote: »

To clarify, the shop debts are not business loans per se; more unpaid suppliers and council rates plus - most pressingly - a CCJ from, would you believe, his accountants!

These debts may be putting potential buyers off the business?

moneywasternomore! wrote: »

If I've read this correctly, if they close the doors and simply cease trading, as long as the debts are in his name, the creditors cannot make my stepmother sell the house to meet those debts (assuming they are joint tenants - clarifying this tomorrow)?

True, except for any of those debts which are secured.

moneywasternomore! wrote: »

If they manage to sell the business, any profits from that sale will go to repaying the business debts; if there is any 'estate' left after this, my stepmother would not be liable for any of my dad's personal debts - credit cards etc?

As a sole trader, there is no distinction between personal and business debt, so profits go equally to personal and business debt. So if there is any estate after this, it goes to Step mother and if there is still debt left, Step mother does not have to pay anything - as long as she was not legally part of the business.

On the intermeddling issue, unless Father died last week, it looks like it might have happened already. It is far from the big disaster which Yorkshireman is making out. Essentially the consequences are pretty much that anyone carrying on the business in his name is doing so at their personal risk, and that is about it. As the business is viable, that should not be an issue

moneywasternomore!

He died on Wednesday.