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.
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.
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.
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.
If you are worried about protecting your personal finances during a divorce, here are four important steps you can take.
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 payments, and provide budget help. Based on your income, they can give you decent idea of what you can expect to pay in a bankruptcy or consumer proposal scenario.
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.
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.