What Happens to My Debts if I Divorce My Spouse?

Dealing with debt can be difficult at the best of times, and it’s even more complicated and stressful in a divorce situation. If you and your spouse separate, you’ll need to divide your debts as well as your assets. How this is done will depend on how your debts are structured.

Who’s responsible for which debt?

Generally speaking, whoever incurred the debt is responsible for it. This means that if you have a credit card that is in your name only, or if you owe on a student loan or income taxes, that debt belongs solely to you. Things get a little more complicated, however, when debts are joint.

How will you divide joint debts?

You and your spouse may be able to reach an agreement on dividing your debts: for instance, you agree to pay Creditor A and he/she agrees to pay Creditor B, and so on. In most cases, the spouse who keeps a certain asset (i.e. a car or a boat) will also take over the debt for that asset. It’s critical to remember, however, that if you and your spouse have a joint debt, you both remain legally responsible for its full amount. In other words, as far as your creditors are concerned, if either of you fails to make the payments, the other is still on the hook for the amount owing—regardless of what you may have agreed on between you. This holds true even if one of you goes bankrupt: as long as the other remains solvent, creditors will see him/her as a potential source of repayment. (Your lawyer may be able to provide you with some protection against this in your separation agreement.)

We’re not divorced yet—how can we avoid these problems?

If you and your spouse are still living together, now is the time to plan ahead by not incurring additional debt.  Now is also the time to speak to a trained insolvency professional, who can provide you with the information you need to make the best financial decisions possible, and who may be able to help you put together a debt repayment plan or other solution tailored to your needs.

No matter what stage of divorce/separation you’re currently at, if you need financial help, call one of our insolvency experts today for your free, no-obligation, confidential consultation: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926 or book online.

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