Debt and Divorce: What You Need to Know


We all vow “to love and to hold” until death do us part, but statistics show 40% of marriages in Canada end up in divorce. Most divorcing couples will have accumulated debt be it in the form of credit card debt, mortgages, and other debts and the issue of debt division is therefore important with marriage dissolution.

Granted, divorces can get messy. It is, however, important that couples work on debt-related issues and how to share debt jointly before the divorce. If you are unable to settle matters debt amicably during the divorce process, consult certified debt consolidation specialists in Toronto for advice on debt and a lawyer for all matters legal. Here are answers to common debt and divorce questions.

Do I have to pay my spouse’s debt?

To the creditor, it does not matter that you were a couple when you took the debt. The creditor only knows the person who took the debt, even if the money was spent by both spouses. If the person who took the debt does not pay, it is their individual credit rating that will be affected.

Couples should ideally split their debt before the divorce and make arrangements to pay the debt off individually. If such arrangements are not made, then the court will intervene to determine how the debt should be split.

Can we share individual debt?

The simple answer is ‘yes’, but mostly for debt used by the family and not by individuals like student loans. Debts like mortgages should be split because they were taken for the family, irrespective of whose name is on the mortgage papers. Ultimately, it is up to the court to determine how marital debt will be split in a divorce. However, the creditor will follow the person whose signature is on the loan papers as the responsible party.

What happens to joint credit cards and how do we share credit card debt after a divorce?

At the risk of sounding like a broken record, the creditor will expect the person who took credit card debt to pay. The court will decide on how the existing debt will be paid off. If you have a joint credit card, the primary cardholder should remove the secondary cardholder as soon as possible to avoid the accumulation of debt. You can also call the lender to freeze the account to prevent more charges. 

Other options to deal with joint debt are asking the lender to remove one spouse from any debt they guaranteed or co-signed, asking the lender to slip the debt into 2 new loans in separate names, filing for consumer proposal or bankruptcy, and filing for joint consumer proposal or bankruptcy.

What happens if my partner fails to pay half of the debt as agreed on the divorce agreement?

Your former partner may fail to pay their half of the debt due to financial constraint or other reasons. If this happens, you should take up the matter with a divorce and family lawyer in Toronto to take the case tack to court for a resolution. You should, however, continue making payments because your credit score will be impacted, even as you wait for the court’s ruling. Keep a record of all repayments you make that are your partner’s responsibility.

Do I have to pay debt that I was not aware of?

Both parties should pull their credit report from Equifax and TransUnion. This transparency is important in building trust and it ensures no one is caught off guard while the divorce is being finalized. It is the responsibility of the person who took the loan to ensure it is paid off, so you don’t need to worry if your partner fails to disclose a debt to you. Indeed, provincial and federal governments expect debt like student loans and back taxes to be paid off by the person who took them.

How do we handle secured debts in divorce?

Auto loans, mortgages and other secured debt are treated differently in divorce proceedings compared to unsecured debt like lines of credit and credit card debts. This is because secured debts have assets attached to them. You should, therefore, consider selling the asset and splitting the money to pay off the debt so you can start your lives on a clean slate. If one of the partners wants to get rid of the asset while the other does not, the court can always decide. For auto loans, there’s always the option of refinancing the vehicle under the name of the spouse who wants to keep it.

What happens to joint debt if my ex goes bankrupt?

If your ex files for bankruptcy and is unable to continue with payments, you will be responsible for paying off the debt and the creditor will shift his focus on you. You should avoid the practice of assigning all debt to one party and all properties to the other party and then the party that has debt filing for bankruptcy. Your creditors will see through this and will come for the party that has the property with the aim of recovering the full amount of joint debts.

How do I protect myself from debt during the divorce process?

Get as much information as you can about your spouse’s debts to ensure all debts are covered. Consider removing your spouse as a secondary cardholder and freezing joint credit card accounts to prevent further accumulation of credit card debt as the courts rule on how the debt will be split. With the help of a mortgage broker in Toronto sell your home and split the money and refinance your auto loan so only the person who will go with the vehicle is listed.

Speak to your lawyer at the start of the divorce process to ensure your interests are covered. Most lawyers in Toronto give free consultative sessions for up to 30 minutes. Next, talk to a certified credit counselor to review your financial options. At York Credit, we are certified debt consolidation specialists with years of experience in financial assessment, debt solutions, and money management. Call us on (647)302-3328 and we will help you figure out how much debt you have and advise you on your debt-relief options, among other solutions.