February 22, 2023
Debt and divorce often go hand in hand. Discover how your debts are treated after divorce and which ones you’ll be responsible for paying here.
Going through a divorce or separation is one of life’s most challenging experiences. Emotions run high, decisions feel overwhelming, and while both parties often want to move on, financial issues can make that process more complicated than expected.
The financial ties formed in a relationship don’t disappear when it ends. There's often worry about whether one person's financial decisions will affect the other and how to separate finances cleanly moving forward.
These concerns can add significant stress to an already painful situation. It’s important to understand how debt is divided when a marriage breaks down and how to protect your financial health moving forward.
When it comes to divorce or separation, you are not responsible for paying your former partner’s individual debts. Individual debt refers to any financial obligation that one person took on in their own name, without involving you.
This type of debt is tied to the person who signed for it, making them solely accountable for repayment.
For example, if your ex-spouse took out a personal loan, racked up credit card debt on an account that only they signed for, or financed a car in their name alone, they alone would be responsible for paying the debt off.
Even during marriage, individual debts remain the responsibility of the person who agreed to them.
You aren’t responsible for any of these debts. Only the person who signs the agreement is bound to its terms. Unless your name is also on the account, the lender or creditor cannot pursue you for repayment.
Joint debt refers to any financial obligation that you and your former partner agreed to share.
Examples of joint debt include:
Even after a separation or divorce, this shared responsibility doesn’t disappear.
For instance, if you both co-signed for a car loan, the lender can pursue both of you for repayment, regardless of who agreed to keep it after the separation.
This is why it’s important to address joint debts as part of the divorce or separation process.
To manage joint debts, you can agree to divide them in a way that works for both of you. For example, you might agree to split all debts 50/50, so you each pay half the balance.
You could also decide to split up the debts and each be responsible for paying specific ones. An example might be that one of you agrees to pay off a car loan, while the other pays off a line of credit.
These agreements can be made informally between you and your ex, through mediation, or by court order during divorce proceedings.
However, it's important to understand that lenders don’t recognize these personal agreements. If you signed the loan together, the creditor will hold both of you accountable for the total debt, regardless of what you and your ex-spouse decide.
This means missed payments by your ex can still harm your credit score.
To protect yourself, consider refinancing or transferring joint debts into individual ones where possible.
If you are worried about protecting your personal finances during a divorce or separation, here are four important steps you can take.
You should cancel joint credit cards and close any joint accounts you have. You and your ex will both be required to sign the necessary paperwork to close any joint accounts.
If you yourself use a joint credit card after your separation, your ex-spouse can force you to reimburse them for any purchases you made. They may even sue you if you do not pay the amount back.
Going through a divorce or separation significantly impacts your income, often creating financial challenges you didn’t face before. When you transition from sharing expenses with two incomes to managing everything on your own, your financial resources can feel stretched thin. Paying bills, covering daily living costs, and handling unexpected expenses becomes more difficult without the cushion of a combined household income.
If you have children, the situation can become even more complicated. Child support payments or new expenses related to raising kids in separate households may further impact your budget.
This is the reality for many people after the breakdown of a marriage. Life doesn’t become cheaper just because your circumstances have changed, if anything it’s often more challenging to pay the bills.
If your ex files for bankruptcy or a consumer proposal, you could become 100% responsible for paying off any joint debt. Declaring bankruptcy or filing a consumer proposal does not make the debt go away, it shifts the responsibility to the other party. This means you will be responsible for paying back the total debt.
You could also decide to file for bankruptcy or a consumer proposal yourself to alleviate the burden of any joint debt.
Your spouse will still have to pay child support and alimony to you even if they declare bankruptcy or file a consumer proposal. Bankruptcy or a consumer proposal do not stop these payments.
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.
Divorce or separation often leaves your finances in disarray. If you’re struggling to make ends meet or manage debt on your own, speaking with a Licensed Insolvency Trustee can help you find solutions to money worries.
A Licensed Insolvency Trustee can assess your financial situation and help you explore debt relief options tailored to your needs. They will listen to your concerns, review your income, expenses, assets, and debts, and recommend strategies to regain control of your finances. They’re regulated by the government of Canada, so you can have confidence in their advice.
BDO’s Licensed Insolvency Trustees offer judgment-free guidance, so you can address your financial challenges without fear of stigma.
The first consultation is free of charge and completely confidential.
February 22, 2023
Debt and divorce often go hand in hand. Discover how your debts are treated after divorce and which ones you’ll be responsible for paying here.
