Financial issues are a leading contributor to divorce. If money was an issue during the marriage, it can be difficult to get both parties on the same page when it comes to settling debts that amassed during the marriage. To better understand the circumstances regarding debt in a marriage and the process for resolving it if divorce occurs, it’s helpful to go over the two kinds of debt that likely exist in the relationship.
There’s Joint Debt. This is debt in which more than one party has co-signed for the debt. It can be a loan, line of credit, credit card or mortgage. Each person whose signature is on the debt contract shares equal liability for the debt. In the event of a default situation, the lender can take measures, ranging from collections to potential lawsuits, against any or all parties to recover the money owed. In the eyes of the lender, the debt is still co-owned. Therefore, they are within their rights to pursue the other party if one defaults.
The second type of debt likely to exist in a relationship is Individual Debt. This is debt in which only one person has applied and signed for the debt. This may be a debt acquired before or after entering the marriage and can include credit cards, income tax debt, vehicle loans or financing, personal loans, overdraft, lines of credit and more. As only one spouse signed for the debt, only that individual is legally responsible for paying it back. If they default, the lender cannot go after the other spouse for payment.
The consequences of debt after divorce go beyond deciding who is going to pay for what. The benefits of a dual income that occur in a marriage generally make it easier to afford debt payments and other bills. Understandably, those costs are much more difficult for one person to manage on their own. Because of this, it’s not uncommon for one or both spouses to file for bankruptcy or a consumer proposal shortly after separating. If only one spouse claims bankruptcy, it leaves the burden of any joint debts on the other spouse. At best, this increases the other spouse’s debt and delays them from becoming debt free. At worst, it may drive the second spouse to also file for bankruptcy or a consumer proposal.
Getting a divorce is often about making a fresh start, emotionally and financially. If you have debt in your relationship and are considering filing for divorce — or if you are experiencing a financial crisis because of a separation — meeting with a Licensed Insolvency Trustee can provide you with options.
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