7 things about divorce and debt

Financial Wellness Podcast

1. It's important to understand the difference between joint and individual debt  

A marriage doesn’t automatically tie you to your partner’s debts or their credit. You can be married and hold individual debt that remains your debt even if your marriage comes to an end. The same goes for your spouse. If they have individual debts, you are not responsible for paying that debt if they are unable to pay it back themselves. However, if you co-signed a debt for your spouse, you remain responsible for that debt if they are unable to pay it back, regardless of what happens to the marriage. 

2. If both spouses signed for the credit, both are fully responsibility for the debt

With credit agreements, the only thing that matters is who signed for the funds. If the debt was meant for one person and not the other, it doesn’t matter. If your name is on the agreement, you are responsible for the debt in the eyes of the financial institution who lent you the money. This can create a lot of friction within a couple, especially if only one person accesses the funds while the other person only agreed to co-sign. Even if there is an understanding within the couple, the financial institution can refer to what the contract says.  

3. Joint debt does not mean you only owe 50%

A common myth surrounding joint debt is that many people believe that it means they are only 50 per cent responsible for the debt. It doesn’t. Joint debt means that you are both 100 per cent responsible for the debt. And the financial institution will find the money where they can. If they are unable to find repayment with one spouse, typically the main borrower, they will collect full payment from the co-signer.

4. It's important to protect your finances during a divorce 

If you are worried about protecting your personal finances during a divorce, here are four important steps you can take.

• Remove your spouse as a secondary cardholder. It’s important to determine which accounts belong to whom and who is listed as primary and secondary cardholder. If you have a spouse that’s still attached to a credit card or some other credit facility, and you have concerns that they may continue to incur additional debt, you can work to have them removed from those cards. Remove your spouse as a secondary card holder so that they’re unable to continue to use the debt.  
• Freeze accounts if you can. You can also freeze certain accounts so that any account holder on the account can only make payments and can no longer incur additional debt or increase the balance. You want to make sure your name is on your financial agreements and the financial institution sees you as responsible.  
• Keep paying on joint debts (even if your spouse isn’t) to protect your credit. To protect your own credit score, it’s important that you are making payments on any joint debt, at least until you have some assurance that somebody is going to be paying as per any forthcoming legal agreement. Not paying these payments can be very detrimental to your credit score.  
• Refinance secured loans if it makes sense. For secured debts, if you are able, it may make sense to refinance any loans under one name and remove the other spouse completely. Whoever is keeping the asset will usually refinance the asset under their own name, provided they can qualify on their own. 

5. A Licensed Insolvency Trustee can help determine the best time to file a consumer proposal or bankruptcy

6. You or your ex must make support payments, even in the event of a consumer proposal or bankruptcy  

Support payments must continue regardless of whether you or your ex have decided to file a consumer proposal or bankruptcy. These debt repayment programs may affect these payments, but you or your ex are still required to uphold them. They are considered a non-discretionary expense and are determined based on the interest of the children. A Licensed Insolvency Trustee can help you determine how much you can expect to pay or receive and help you organize your budget accordingly.

7. Budgeting for your new normal can help if you're struggling with post-divorce debt

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