What happens to debt in a divorce or separation?

2024-02-05  4 minute read

Zaki Alam

Consumer Proposal


Going through a separation can be one of the most challenging and stressful experiences people have. It’s a time when each spouse is looking to move on to a new chapter in their life and close the book on their marriage. But when it comes to the accounting books, unfortunately, it’s not always that simple.

Just like spouses have to divide up their assets in a divorce, you also have to address your collective debt. This leads to many questions about how to split the debt leftover from their relationship. Who is taking on that debt, and how much? And in even more challenging circumstances, what happens when one or both spouses can’t afford to pay off the debt on their own?

Answering these questions will position both parties to make the most informed decisions they can, ultimately setting yourself up for a true fresh start on a path to full financial freedom.

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Debt is a big part of divorce — before and after

Finances are one of the primary contributors to divorce. Marriages that deal with large amounts of debt through mortgages, credit card debt, financing, and other loans often struggle under the burden of an unhealthy financial situation. This strain can cause too much damage to the marriage to repair. These financial struggles carry over into the divorce and beyond.

Even after allocating the debt through the separation proceedings, spouses can continue to struggle to repay their debt. This debt can become even more unmanageable than it was in the marriage. One or both spouses have now gone from a dual-income living situation with debt — to a single-income with debt. This new struggle to pay the debt from a divorce doesn’t come from being resentful or irresponsible. It’s just the reality of their new financial situation.

It’s important to understand how the debt will ultimately be split up, and what happens when one spouse can no longer afford to pay their share. 

The difference between joint debt and individual debt

One of the biggest factors in dividing debt in a divorce is the difference between individual debt and joint debt. This distinction isn’t just important during and after a divorce. In new and active marriages, spouses can choose to be proactive with certain debts simply by being aware of whether they’re taking on individual or joint debt.

Individual debt

Individual debt occurs when only one spouse applies and signs for the debt. Whether it’s a credit card, mortgage, vehicle loans or financing, overdraft, lines of credit, or other loans, the agreement is between the lender and a single individual. This can apply to debt that a spouse has before getting married and this can also occur during the marriage.

In the case of individual debt, since only one spouse signed for the debt, only that spouse will be legally responsible for paying it back. If individual cannot pay the debt, there is no legal path the lender can take to go after the other spouse for debt repayment.

Joint debt

With joint debt, more than one party has co-signed for the debt. This is often the case with bigger agreements like a mortgage but can also apply to joint credit cards, supplementary or spousal cards, vehicle loans and financing, and any other loans or lines of credit. However, joint debt can also apply to a debt that one individual signed for and the other spouse guaranteed because the borrowing individual’s credit wasn’t enough to get on their own. 

In the case of joint debt, each person who signed the agreement shares equal liability for the debt. If both spouses sign, they’re both responsible for paying it.

Even if a legal separation agreement states that the debts will be allocated or split, both are still responsible for all debt until it is paid off. (The legal agreement is made between the separating couple, not between the couple and the lender). Only the lender can release one or the other from a co-signed loan or joint debt.

When one spouse can’t pay their debt

When it comes to divorce, joint debt has further-reaching consequences. If one of the spouses cannot pay their share of the debt, the lender can seek repayment from the other spouse, and even take measures such as collections or potential lawsuits to recover the money owed.

Going back to the additional strain of paying the debt with a single income, some spouses may need to file for Bankruptcy or a Consumer Proposal. This leaves the burden of paying off any joint debts on the other spouse. This may simply delay the second spouse from paying off all their debts with the additional income, however, it can also trigger an unmanageable situation where the second spouse may also have to consider Bankruptcy or a Consumer Proposal.

Relationship breakdown and financial stress: Insolvency can help in the path to resilience

An MNP Insolvency Trustee can help deal with the financial stress. They will be able to draft a financial appraisal of yourself, discuss all available options, including legislative options such as Consumer Proposal or Bankruptcy, and then you will be able to choose the best options tailored to your specific needs. You will be able to protect certain assets, free up money to make/receive support payments, and work towards a permanent solution to deal with the debts. The objective is to work towards a fresh financial start and rebuild credit rating.

Consumer Proposal

Filing a Consumer Proposal allows you to keep even more of your assets while working to pay a reduced debt agreed upon by you and your creditors. This negotiation process is conducted by a Licensed Insolvency Trustee. You will pay a fixed monthly rate until your collective debts are paid.

Consumer Proposals have a lesser effect on the other spouse as you will still be paying off an amount agreed upon by your creditors. However, joint debts will likely be considered when it comes to the negotiation process.


Filing for Bankruptcy provides immediate relief from debt repayment. You will have to work with a Licensed Insolvency Trustee to go through the process, determining which assets you can keep and what your duties are that need to be completed. For some people, this is a viable choice to make if their finances and debt become unmanageable after a divorce, eventually giving you a clean financial slate when your credit rating recovers.

However, this will also shift the burden of joint debt to your former spouse, as creditors will turn to them to continue repaying the full amount owed. An additional consideration when it comes to divorce is that filing for Bankruptcy does not eliminate your responsibility to continue making spousal or child support payments.

You can still have that fresh start

A divorce can be a challenging experience, and the financial fallout is no different. Oftentimes, the fresh start you’re looking for comes after both spouses have paid off the debt they took away from the marriage.

But you don’t have to navigate your financial journey alone. An MNP Licensed Insolvency Trustee will provide a no-obligation Free Confidential Consultation before, during, or after a divorce. A Trustee can review your financial situation, hear your concerns, and discuss your goals for the future as they provide recommendations to deal with your outstanding debt.

No matter how your marriage is ending, there will be several financial decisions to make and options to resolve them. It’s important to speak with a professional who can give you the information and guidance you need to get your fresh start.

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