Debt In a Divorce (MNP 3 Minute Debt Break)

G

oing through a divorce or separation can be emotionally and financially challenging, and one of the most complex aspects is dealing with debt. Just as assets are divided, debts must be looked at too. The division of debt can raise lots of questions about responsibility, especially when one or both spouses struggle to pay it off on their own.

After separation, individuals often move from a dual-income to a single-income household, making it tough to repay debt. Understanding how debt is divided and what happens if one person cannot pay is essential for navigating this aspect of divorce.

The division of debt in a divorce hinges on whether it is joint or individual. Individual Debt is debt incurred by one spouse alone, such as personal credit cards, loans, or financing agreements signed by a single person. In these cases, only the spouse who signed the debt agreement is legally responsible for repayment. The lender cannot pursue the other spouse for this debt.

Joint Debt involves both parties, such as a mortgage, joint credit cards, or loans co-signed by both spouses. In these situations, both parties are equally responsible for repayment. Even if a divorce agreement allocates the debt to one spouse, both remain liable to the lender until the debt is fully paid. 

If one spouse cannot pay their share of joint debt, the lender may seek repayment from the other spouse, potentially leading to collections or lawsuits. This can create significant financial strain, especially in a single-income household. In severe cases, the non-paying spouse may consider filing for Bankruptcy or a Consumer Proposal, which can shift the debt burden to the other spouse.

If you find debt is overwhelming after a divorce there are options for managing it. 

A Consumer Proposal option allows a debtor to negotiate a reduced debt payment with creditors while retaining more assets. It has less impact on the other spouse compared to bankruptcy, but joint debts will still be considered during negotiations.

Bankruptcy is another option and provides immediate relief from debt but may transfer the responsibility of joint debts to the former spouse. It does not relieve obligations such as spousal or child support payments.

Divorce brings both emotional and financial complexities, and debt management is a significant part of that. Whether handling individual or joint debt, understanding your options and seeking professional guidance is crucial to achieving a clean financial slate and moving forward. A Licensed Insolvency Trustee, like MNP Debt, can provide essential support. They help assess financial situations, explore options like Consumer Proposals or Bankruptcy, and offer tailored advice for achieving a fresh financial start. 

Subscribe to MNP 3 Minute Debt Break on your favourite streaming service.