Date

February 22, 2023

7 things about divorce and debt

Debt can make divorce even more complicated. Here are 7 things you should know about debt when a marriage breaks down.

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7 things about divorce and debt

Difficulties with debt can sometimes contribute to the breakdown of a marriage, but divorce will not necessarily solve a couple’s financial problems. Debt can quickly become an ongoing point of contention between spouses who are separating, especially if there’s disagreement on how debt will be split. In this post, we will cover 7 things you should know about divorce and debt.    - thumbnail

Difficulties with debt can sometimes contribute to the breakdown of a marriage, but divorce will not necessarily solve a couple’s financial problems. Debt can quickly become an ongoing point of contention between spouses who are separating, especially if there’s disagreement on how debt will be split. In this post, we will cover 7 things you should know 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 creditTo 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 senseFor 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

One of the best things about sitting down with a Licensed Insolvency Trustee is that they will explore all your debt relief options according to your own unique situation. 

Because every divorce is different, an LIT will provide an assessment and financial plan that outlines the pros and cons of every different type of debt solution available to you. They will also explain if you should file now or wait until your divorce is finalized.   

You should also obtain legal advice from your lawyer. An LIT can provide you with the options, but a lawyer can actually tell you when is the exact time to file.   

In addition, an LIT can go over different scenarios with you. If you’re unsure of what the support payments will be, they can go through your numbers, look at your income, support paymentsand provide budget helpBased on your income, they can give you decent idea of what you can expect to pay in a bankruptcy or consumer proposal scenario. 

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 themThey 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

Following a divorce, the most important financial step to make is to focus on what is coming in and what is going out. Do you have sufficient funds left over each month to reasonably cover your debt payments? If not, then it’s time to reach out to a Licensed Insolvency Trustee and explore your options. 

Finally, when it comes to financial planning, try to set your emotions aside and do what makes the most sense. The more proactive you can be in dealing with things the better. There are debt solutions available.  

Do you need help figuring out debt following a divorce? A Licensed Insolvency Trustee will explain your options free of charge and without any obligation on your behalf.

Do you have more questions?

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Date

February 22, 2023

7 things about divorce and debt

Debt can make divorce even more complicated. Here are 7 things you should know about debt when a marriage breaks down.

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