Make Dealing with Debt a Priority During Divorce

It’s no secret that financial problems can put a great strain on a relationship. If your relationship has deteriorated to the point where you are facing a separation or divorce, I guarantee that any existing financial troubles will only get worse. When helping people through the bankruptcy process, many of them say they are claiming bankruptcy because of a relationship breakdown.  In most of those cases, the financial difficulty existed long before the divorce happened.

If you find yourself facing a divorce and your debt was a big source of contention between you and your spouse, then dealing with your debt issues is an important step in the divorce process. 

You are Both 100% Responsible for Joint Debt

One way many couples deal with their debt obligations is to have the spouse with the higher income agree to pay the matrimonial debt as part of a separation agreement. So long as that spouse follows through with their agreement this is not a problem. Without a proper budget or financial plan however, individuals often underestimate their cost of living post separation, or they have no plan for any potential income changes in the future. As a result, they fall behind on their payments to the creditors and this creates a real problem for both parties.

Even if there is a separation agreement which states your spouse will pay your debt, you are still responsible for making sure it is paid. This means if the payments are not made by your ex-spouse / partner as agreed upon, your creditors are going to start looking to you to obtain their payment.

Having creditors come after you will affect your credit record and you may even be subject to legal action. As you were not the person making the regular payments, you might not even be contacted until the debt is in arrears and your credit record has already suffered, as they will try to collect from your ex-spouse first.

If this happens, your options for dealing with this debt may be more limited than they would have been if you had made different choices at the beginning of the divorce process.

What Should We Do With Our Debts?

If financial trouble was an issue in your marriage, you should consider consulting a debt expert before making any decisions about your assets or debts. No one wants to be dealing with any lingering issues that came from marriage after their divorce any more than necessary. By meeting with a debt expert, you might find a solution to your financial problems that you didn’t even know was an option.

One way a trustee can help is to make use of the equity in your matrimonial home to settle your outstanding debt through a consumer proposal. A consumer proposal is an interest-free settlement option that allows you to pay your creditors a percentage of your total debt. For instance, if you had household debt of $80,000 and potential house equity of $40,000, you would contribute the equity of $40,000 into a consumer proposal and eliminate $80,000 of debt. This will allow both of you to set up your new households with the freedom of being debt-free. It also removes concerns you may have if your ex-spouse will honour the agreed to debt payments under the terms of your separation agreement.

This is only one example of a good way to deal with your debt when facing a divorce. The ending of a marriage is never easy. Having the helpful advice of a trustee to help resolve the financial problems of your marriage can be crucial in getting you through this difficult time and allowing you to start your life without debt payments as a monthly reminder of your past relationship.