How is Debt Shared in a Divorce?
Money problems are one of the top five causes of divorce in Canada. It is no surprise then that financial matters are also often a cause of contention in a divorce. If you are going through a divorce, you may be wondering how the debt you accumulated during the marriage will be shared or if you will be left carrying your spouse’s debt.
Here are some things you should consider:
Joint debt vs individual debt
In a marriage, there are two types of debt—joint debt and individual debt. A joint debt is one in which both parties have co-signed for a credit card, loan, line of credit, mortgage or any other form of credit. Individual debt is a financial obligation in which there is an agreement between one spouse and a lender. In most instances, a couple will share their joint debt while each spouse will be responsible for paying their individual credit.
How will a divorce affect different categories of debt?
Credit Card Debt
You will not be asked to pay credit card debt that is held only in your spouse’s name. You will, however, be legally responsible for clearing the debt accumulated on a joint credit card, regardless of who normally makes the payment and whether you used the card or not.
After a separation, you and your spouse must still make mortgage payments as long as you are both listed as owners of your marital home. The best way to handle mortgage credit is usually to sell the home and split the money. But if one spouse decides to keep the home, they will need to purchase the other spouse’s equity.
If you and your spouse have a joint auto loan for a vehicle you would like to keep, your best option is to refinance the car on your own. But if you find that you cannot keep up with auto finance payments on your sole income, it may be time to trade in your old vehicle for a less expensive one.
What happens if your spouse files for bankruptcy?
If your spouse files for bankruptcy while you are still in the process of finalizing your divorce, there may be significant implications for your personal finances. Although your spouse will no longer be obligated to pay their creditors, the credit is not erased. Therefore, regardless of what your separation agreement says, if you have joint debt, the creditors will then pursue you for payment of the full amount. You should also be meticulous about checking your credit report if your spouse files for bankruptcy. In some instances where there is joint credit, a bankruptcy note may appear on the credit report of the spouse who did not file. Additionally, ensure you close all joint accounts as quickly as you can to prevent your spouse from going a spending spree and leaving you with the bill. Be careful as well to protect your financial information during a divorce as it is a prime time for identity fraud.
Do you need the help of an experienced Toronto divorce lawyer to settle joint debt?
If you are searching for an experienced Toronto divorce lawyer to help you settle credit and other matters, contact us at Baker and Baker Family Law. With over 90 years of combined experience, our Toronto divorce lawyers are in a strong position to help you work through the complicated issues that arise in your divorce.
So, what are you waiting for? Give us a call today to schedule a free legal consultation with one of our Toronto divorce lawyers. Let us show you how we can help.